nep-gth New Economics Papers
on Game Theory
Issue of 2016‒08‒21
nine papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Common Belief Revisited By Romeo Matthew Balanquit
  2. Threshold Bank-run Equilibrium in Dynamic Games By Romeo Matthew Balanquit
  3. Continuous time, continuous decision space prisoner’s dilemma: A bridge between game theory and economic GCD-models By Glötzl, Erhard
  4. Learned Generosity? A Field Experiment with Parents and Their Children By Anya Samek; Avner Ben-Ner; John List; Louis Putterman
  5. Intertemporal strategic investment-consumption model: An example By Alex Barrachina; Eduardo Jiménez-Fernández
  6. To report or not to report: Applying game theory to nursing error reporting By Alex Barrachina; Víctor González-Chordá
  7. Strategic sequential voting By González-Díaz, Julio; Herold, Florian; Domínguez, Diego
  8. The Influence of Political Pressure Groups on the Stability of International Environmental Agreements By Achim Hagen; Juan-Carlos Altamirano-Cabrera; Hans-Peter Weikard
  9. Communication in vertical markets: Experimental evidence By Möllers, Claudia; Normann, Hans-Theo; Snyder, Christopher M.

  1. By: Romeo Matthew Balanquit (School of Economics, University of the Philippines Diliman)
    Abstract: This study presents how selection of equilibrium in a game with many equilibria can be made possible when the common knowledge assumption (CKA) is replaced by the notion of common belief. Essentially, this idea of pinning down an equilibrium by weakening the CKA is the central feature of the global game approach which introduces a natural perturbation on games with complete information. We argue that since common belief is another form of departure from the CKA, it can also obtain the results attained by the global game framework in terms of selecting an equilibrium. We provide here necessary and sufficient conditions. Following the program of weakening the CKA, we weaken the notion of common belief further to provide a less stringent and a more natural way of believing an event. We call this belief process as iterated quasi-common p-belief which is a generalization to many players of a two-person iterated p-belief. It is shown that this converges with the standard notion of common p-belief at a sufficiently large number of players. Moreover, the agreeing to disagree result in the case of beliefs (Monderer & Samet, 1989 and Neeman, 1996a) can also be given a generalized form, parameterized by the number of players.
    Keywords: common p-belief; common knowledge assumption; global games
    JEL: D83 C70
    Date: 2016–08
  2. By: Romeo Matthew Balanquit (School of Economics, University of the Philippines Diliman)
    Abstract: This study sets a bank-run equilibrium analysis in a dynamic and incomplete information environment where agents can reconsider attempts to run on the bank over time. The typical static bank-run model is extended in this paper to capture the learning dynamics of agents through time, giving bank-run analysis a more realistic feature. Apart from employing a self-fullling framework in this model, where agents' actions are strategic complements, we allow agents to update over time their beliefs on the strength of the fundamentals that is not commonly known. In particular, we extend the bank-run model analyzed by Goldstein and Pauzner (Journal of Finance 2005) and build it on a dynamic global games framework studied by Angeletos (Econometrica 2007). We present here how a simple recursive setup can generate a unique monotone perfect Bayesian Nash equilibrium and show how the probability of bank-run is a¤ected through time by the inow of information and the knowledge of previous state outcome. Finally, it is also shown that when an unobservable shock is introduced, multiplicity of equilibria can result in this dynamic learning process.
    Keywords: threshold bank-run, monotone perfect Bayesian Nash equilibrium, dynamic global games
    JEL: C73 D82 G10
    Date: 2016–08
  3. By: Glötzl, Erhard
    Abstract: General Constrained Dynamic models (GCD – models) in economics are inspired by classical mechanics with constraints. Most macroeconomic models can be understood as special cases of GCD – models. Moreover, in this paper it will be shown that not only macroeconomic models but also game theoretic models are strongly related to GCD – models. GCD models are characterized by a system of differential equations in continuous time while most game theoretical models are set up in discrete time. Therefore it is necessary to build a bridge from game theoretical models denominated in discrete time to game theoretical models using continuous time. This bridge is illustrated in the following using the example of a continuous time, continuous decision space prisoner’s dilemma. Furthermore, it is shown that the differential equations which determine other continuous game theoretic models can be understood to a certain extent as special cases of the GCD – differential equations. Well known types of continuous game theoretic models include for instance “Evolutionary Game Theory” with the replicator equation, “Adaptive Dynamics” with the canonical equation, which is nothing else than a replicator – mutator equation, and the so called “Differential Games”, which are strongly related to optimal control theory with two controls and two different objectives (goals). Most of the GCD – models are characterised by 3 key feature: - mutual influence, - Power-factors - Constraints Nowak (2006b) and Taylor & Nowak (2007) show that there are five mechanisms which, under certain conditions, can lead to the evolution of cooperation in an iterated prisoner’s dilemma. Inspired by this, we apply the 3 key features of GCD – models to the standard prisoner’s dilemma in discrete time which yields 3 additional mechanisms which enable the evolution of cooperation. The assumption or axiom of the free market economy is that an individual optimisation strategy will lead to an overall optimum by virtue of Adam Smith’s invisible hand. Without additional conditions this assumption alone is fundamentally wrong. As in prisoner’s dilemma also in economics cooperation is essential to get an overall optimum. The big question of political economy is to analyse which additional measures could guarantee that the individual optimisation strategy characterising a free market economy leads to cooperation as precondition to get an overall optimum. From this point of view the different economic theories could be characterised in terms of which measures they assume to be sufficient to guarantee an overall optimum without abandoning the principle of individual optimisation.
    Keywords: economic models, economic GCD-models, continuous Game Theory, Evolutionary Game Theory , Prisoner’s Dilemma, Cooperation, Political Economy
    JEL: B41 C02 C60 C70 C72 E10 E66 P26
    Date: 2016–03–26
  4. By: Anya Samek; Avner Ben-Ner; John List; Louis Putterman
    Abstract: An active area of research within the social sciences concerns the underlying motivation for sharing scarce resources and engaging in other pro-social actions. We develop a theoretical framework that sheds light on the developmental origins of social preferences by providing mechanisms through which parents transmit preferences for generosity to their children. Then, we conduct a field experiment with nearly 150 3-5 year old children and their parents, measuring (1) whether child and parent generosity is correlated, (2) whether children are influenced by their parents when making sharing decisions and (3) whether parents model generosity to children. We observe no correlation of independently measured parent and child sharing decisions at this young age. Yet, we find that apart from those choosing an equal allocation of resources between themselves and another child, children adjust their behaviors to narrow the gap with their parent's or other adult's choice. We find that fathers, and parents of initially generous children, increase their sharing when informed that their child will be shown their choice.
    Date: 2015
  5. By: Alex Barrachina (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Eduardo Jiménez-Fernández (Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: In this paper we analyze the effect of the proportional profit-sharing rule on investment and consumption decisions in a two-period economy. We provide a particular example of an intertemporal consumption model with k ≥ 2 agents in which they have the opportunity to invest in a project, the profit from which is shared by all the agents according to their percentage participation. We show that the equilibrium investment is unique and in pure strategies but not Pareto efficient.
    Keywords: Proportional profit-sharing rule; Intertemporal consumption; Consumption-investment decisions; Strategic investment; Nash equilibrium
    JEL: C72 D1 D9
    Date: 2016
  6. By: Alex Barrachina (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Víctor González-Chordá (Nursing Department, Universitat Jaume I, Castellón, Spain)
    Abstract: The interaction between nurses and their managers is a very important factor in nurses’ error reporting behaviour, which is crucial to improve patient safety in health care organisations. However, little theoretical work has been undertaken to analyse this interaction. This paper attempts to take a modest step forward in closing this gap in the health economics literature by considering a principal-agent model in which the principal (the nurse manager) asks the agent (the nurse) to perform a task with a certain patient. If the nurse makes a mistake while treating the patient, she has to decide whether to report it to the manager, taking into account that the manager can observe whether the patient suffered an accident. Considering four leadership styles for the manager and four styles of error reporting for the nurse, the paper concludes that a leadership style very close to the transformational one is, in general, the best one for receiving error notifications from nurses, which is coherent with the evidence provided by the nursing management literature.
    Keywords: Nurse error reporting – Patient safety – Asymmetric information – Nurse-manager interaction– Nurse leadership style
    JEL: C72 D82 I12 M12
    Date: 2016
  7. By: González-Díaz, Julio; Herold, Florian; Domínguez, Diego
    Abstract: In this paper, we study the potential implications of a novel yet natural voting system: strategic sequential voting. Each voter has one vote and can choose when to cast his vote. After each voting period, the current count of votes is publicized enabling subsequent voters to use this information. Given the complexity of the general model, in this paper we study a simplified two-period setting. We find that, in elections involving three or more candidates, voters with a strong preference for one particular candidate have a strategic incentive to vote in an early period to signal that candidate's viability. Voters who are more interested in preventing a particular candidate from winning have an incentive to vote in a later period, when they will be better able to tell which other candidate will most likely beat the one they dislike. Strategic sequential voting may therefore result in voters coordinating their choices, mitigating the problem of a Condorcet loser winning an election due to mis-coordination. Furthermore, a (relatively) strong intensity of preferences for the preferred candidate can be partially expressed by voting early, possibly swaying the choice of remaining voters.
    Keywords: sequential voting,elections,endogenous timing,strategic timing
    JEL: D72 D71 C72
    Date: 2016
  8. By: Achim Hagen (Carl von Ossietzky University, Department of Economics); Juan-Carlos Altamirano-Cabrera (Economics Center, World Resources Institute, Washington DC); Hans-Peter Weikard (Wageningen University, The Netherlands)
    Abstract: This paper examines the effects of political pressure groups (lobbies) on the emissions abatement decisions of countries and on the stability of international environmental agreements. We consider two types of lobbies, industry and environmentalists. We determine the influence of lobby-groups on the abatement decisions of countries. This influence affects members of an international environmental agreement as well as outsiders. However, in the case of agreement members, the effects of lobbying are not restricted to the lobby’s host-country but spill over to other member countries and have ambiguous effects on the agreement stability.
    Keywords: interest groups, coalition theory, environmental policy making, international environmental agreements
    JEL: C72 D72 D78 H41 Q28 Q54
    Date: 2016–08
  9. By: Möllers, Claudia; Normann, Hans-Theo; Snyder, Christopher M.
    Abstract: When an upstream monopolist supplies several competing downstreamfirms, it may fail to monopolize the market because it is unable to commit not to behave opportunistically. We build on previous experimental studies of this well-known commitment problem by introducing communication. Allowing the upstream firm to chat privately with each downstream firm reduces total offered quantity from near the Cournot level (observed in the absence of communication) halfway toward the monopoly level. Allowing all three firms to chat together openly results in complete monopolization. Downstream firms obtain such a bargaining advantage from open communication that all of the gains from monopolizing the market accrue to them. A simple structural model of Nash-in-Nash bargaining fits the pattern of shifting surpluses well. Using third-party coders, unsupervised text mining, among other approaches, we uncover features of the rich chat data that are correlated with market outcomes. We conclude with a discussion of the antitrust implications of open communication in vertical markets.
    Keywords: commitment,communication,experiments,vertical restraints
    JEL: L42 K21 C90 C70
    Date: 2016

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