nep-gth New Economics Papers
on Game Theory
Issue of 2017‒01‒29
thirteen papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. The Myopic Stable Set for Social Environments By Demuynck, Thomas; Herings, P. Jean-Jacques; Saulle, Riccardo; Seel, Christian
  2. The Estimation of Network Formation Games with Positive Spillovers By Vincent Boucher
  3. Strategy Revision Opportunities and Collusion By Matthew Embrey; Friederike Mengel; Ronald Peeters
  4. Information within coalitions: risk and ambiguity. By Moreno-García, Emma; Torres-Martínez, Juan Pablo
  5. An Axiomatization of the Proportional Rule in Financial Networks By Peter Csoka; P. Jean-Jacques Herings
  6. Scalable games: modelling games of incomplete information By Eccles, Peter; Wenger, Nora
  7. Information advantage in common-value classic Tullock contests By Shitovitz, Benyamin; Selay, A.; Moreno, Diego; Haimanko, Ori; Einy, Ezra; Aiche, A.
  8. Power on digraphs By Peters, Hans; Timmer, Judith; van den Brink, Rene
  9. Cooperation in the Finitely Repeated Prisoner's Dilemma By Matthew Embrey; Guillaume R. Frechette; Sevgi Yuksel
  10. "Strategic" Behavior in a Strategy-Proof Environment By Avinatan Hassidim; Assaf Romm; Ran I. Shorrer
  11. Symmetric information bubbles: Experimental evidence By Yasushi Asako; Yukihiko Funaki; Kozo Ueda; Nobuyuki Uto
  12. Reserve Prices in Auctions with Entry when the Seller in Risk Averse By Wooders, John; Moreno, Diego
  13. Catching-up and falling behind: Effects of learning in an R&D differential game with spillovers By Anton Bondarev; Alfred Greiner

  1. By: Demuynck, Thomas (universite libre de bruxelles); Herings, P. Jean-Jacques (General Economics 1 (Micro)); Saulle, Riccardo (General Economics 1 (Micro)); Seel, Christian (General Economics 1 (Micro))
    Abstract: We introduce a new solution concept for models of coalition formation, called the myopic stable set. The myopic stable set is defined for a very general class of social environments and allows for an infinite state space. We show that the myopic stable set exists and is non-empty. Under minor continuity conditions, we also demonstrate uniqueness. Furthermore, the myopic stable set is a superset of the core and of the set of pure strategy Nash equilibria in noncooperative games. Additionally, the myopic stable set generalizes and unifies various results from more specific environments. In particular, the myopic stable set coincides with the coalition structure core in coalition function form games if the coalition structure core is non-empty; with the set of stable matchings in the standard one-to-one matching model; with the set of pairwise stable networks and closed cycles in models of network formation; and with the set of pure strategy Nash equilibria in finite supermodular games, finite potential games, and aggregative games. We illustrate the versatility of our concept by characterizing the myopic stable set in a model of Bertrand competition with asymmetric costs, for which the literature so far has not been able to fully characterize the set of all (mixed) Nash equilibria.
    Keywords: Social environments, group formation, stability, Nash equilibrium
    JEL: C70 C71
    Date: 2017
  2. By: Vincent Boucher
    Abstract: I present a strategic model of network formation with positive network externalities in which individuals have preferences for being part of a clique. I build on the theory of supermodular games (Topkis, 1979) and focus on the greatest Nash equilibrium of the game. Although the structure of the equilibrium network cannot be expressed analytically, I show that it can easily be simulated. I propose an approximate Bayesian computation (ABC) framework to make inferences about individuals' preferences, and provide an illustration using data on high school friendships.
    Keywords: Network Formation, Supermodular Games, Approximate Bayesian Computation
    JEL: D85 C11 C15 C72
    Date: 2016
  3. By: Matthew Embrey (University of Sussex); Friederike Mengel (University of Essex and Maastricht University); Ronald Peeters (Maastricht University)
    Abstract: This paper studies whether and how strategy revision opportunities affect levels of collusion in indefinitely repeated two-player games. Consistent with standard theory, we find that such opportunities do not affect strategy choices, or collusion levels, if the game is of strategic substitutes. In contrast, there is a strong and positive effect for games of strategic complements. Revision opportunities lead to more collusion. We discuss alternative explanations for this result.
    Keywords: strategy revision opportunities, cooperation, repeated games, complements vs. substitutes
    JEL: C73 C92 D43
    Date: 2016–02
  4. By: Moreno-García, Emma; Torres-Martínez, Juan Pablo
    Abstract: We address economies with asymmetric information where agents are not perfectly aware about the informational structure for coalitions. Thus, we introduce solutions that we refer to as risky core and ambiguous core. We provide existence results and a variety of properties of these cooperative solutions.
    Keywords: Differential Information, risky core, ambiguous core
    JEL: C71 D51 D82
    Date: 2017–01
  5. By: Peter Csoka (“Momentum” Game Theory Research Group - Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Corvinus University of Budapest); P. Jean-Jacques Herings (Department of Economics, Maastricht University, The Netherlands)
    Abstract: The most important rule to determine payments in real-life bankruptcy problems is the proportional rule. Many bankruptcy problems are characterized by network aspects and default may occur as a result of contagion. Indeed, in financial networks with defaulting agents, the values of the agents' assets are endogenous as they depend on the extent to which claims on other agents can be collected. These network aspects make an axiomatic analysis challenging. This paper is the first to provide an axiomatization of the proportional rule in financial networks. Our two central axioms are impartiality and non-manipulability by identical agents. The other axioms are claims boundedness, limited liability, priority of creditors, and continuity.
    Keywords: financial networks, systemic risk, bankruptcy rules, proportional rule
    JEL: C71 G10
    Date: 2016–12
  6. By: Eccles, Peter (Universidad Carlos III de Madrid); Wenger, Nora (Bank of England)
    Abstract: We provide conditions to allow modelling situations of asymmetric information in a tractable manner. In addition, we show a novel relationship between certain games of asymmetric information and corresponding games of symmetric information. This framework establishes links between certain games separately studied in the literature. The class of games considered is defined by scalable preference relations and a scalable information structure. We show that this framework can be used to solve asymmetric contests and auctions with loss aversion.
    Keywords: Asymmetric information; linear equilibria; global games
    JEL: D44 D82
    Date: 2017–01–20
  7. By: Shitovitz, Benyamin; Selay, A.; Moreno, Diego; Haimanko, Ori; Einy, Ezra; Aiche, A.
    Abstract: We show that in a common-value classic Tullock contests with incomplete information a player's information advantage is rewarded. Interestingly, in two-player contests both players exert the same expected effort. We characterize the equilibrium of two-player contests in which a player has information advantage, and show that this player exerts a larger effort and wins the price with a larger probability the larger is the realized value of the prize, although he wins the prize less frequently than his opponent. In addition, we find that players may exert more effort in a Tullock contest than in an all-pay auction.
    Keywords: Tullock contests; Common-value; Asymmetric information; Information advantage
    JEL: D82 D44 C72
    Date: 2016–11
  8. By: Peters, Hans (QE / Mathematical economics and game the); Timmer, Judith (university of twente; ut; universiteit twente); van den Brink, Rene (vrije universiteit van amsterdam)
    Abstract: It is assumed that relations between n players are reflected by a directed graph or digraph. Such a digraph is called invariant if there is an arc between any two players between whom there is also a directed path. We characterize a class of power indices for invariant digraphs based on four axioms: Null Player, Constant Sum, Anonymity, and the Transfer Property. This class is determined by 2n ¡ 2 parameters. By consider- ing additional conditions about the effect of adding a directed link (arc) between two players we single out three different, one parameter families of power indices, reflecting several well-known indices from the literature: Copeland score, β- and apex-type indices.
    JEL: C71
  9. By: Matthew Embrey (University of Sussex); Guillaume R. Frechette (NYU); Sevgi Yuksel (UCSB)
    Abstract: More than half a century after the first experiment on the finitely repeated prisoner's dilemma, evidence on whether cooperation decreases with experience - as suggested by backward induction - remains inconclusive. This paper provides a meta-analysis of prior experimental research and reports the results of a new experiment to elucidate how cooperation varies with the environment in this canonical game. We describe forces that affect initial play (formation of cooperation) and unraveling (breakdown of cooperation). First, contrary to the backward induction prediction, the parameters of the repeated game have a significant effect on initial cooperation. We identify how these parameters impact the value of cooperation - as captured by the size of the basin of attraction of Always Defect – to account for an important part of this effect. Second, despite these initial differences, the evolution of behavior is consistent with the unraveling logic of backward induction for all parameter combinations. Importantly, despite the seemingly contradictory results across studies, this paper establishes a systematic pattern of behavior: subjects converge to use threshold strategies that conditionally cooperate until a threshold round; and conditional on establishing cooperation, the first defection round moves earlier with experience. Simulation results generated from a learning model estimated at the subject level provide insights into the long-term dynamics and the forces that slow down the unraveling of cooperation.
    Keywords: repeated games, prisoners dilemma, threshold strategies, basin of attraction
    JEL: C73 C92
    Date: 2016–02
  10. By: Avinatan Hassidim; Assaf Romm; Ran I. Shorrer
    Abstract: We present direct field evidence of preference misrepresentation under deferred acceptance. The high-stakes admission process to graduate studies in psychology in Israel was centralized using the applicant-proposing version of deferred acceptance. Yet, a large fraction of these highly educated individuals, who had been informed about the strategy-proof nature of the mechanism in numerous ways, failed to play truthfully. Out of 704 rank-ordered lists that included a non-funded position in a program that offered funded positions, we found that in 137 (over 19%) the non-funded position was ranked higher (or the funded position was not ranked at all). This is despite the fact that the applicants had been informed that rank-ordered lists are never made public, funding is considered a positive signal of ability, and funding comes with no strings attached. Preference misrepresentation is associated with weaker applicants. We provide evidence from a laboratory experiment of a strong, causal, negative relationship between applicants? expected desirability and preference misrepresentation.
    Date: 2016–06
  11. By: Yasushi Asako; Yukihiko Funaki; Kozo Ueda; Nobuyuki Uto
    Abstract: This study experimentally analyses traders’choices, with and without asymmetric information, based on the riding-bubble model. While asymmetric information has been necessary to explain a bubble in past theoretical models, our experiments show that traders have an incentive to hold a bubble asset for longer, thereby expanding the bubble in a market with symmetric, rather than asymmetric information. This finding implies a possibility that information symmetry promotes cooperation. However, when traders are more experienced, the size of the bubble decreases, in which case bubbles do not arise, even with symmetric information.
    Keywords: riding bubbles, crashes, asymmetric information, experiment, clock game
    JEL: C72 D82 D84 E58 G12 G18
    Date: 2017–01
  12. By: Wooders, John; Moreno, Diego
    Abstract: We study optimal public and secret reserve prices for risk averse sellers in second price auctions with endogenous entry. We show that an optimal public reserve price rP (observed by buyers prior to making their entry decisions) is above the seller's cost, c, whereas the secret reserve price rS (observed by buyers only upon entering the auction) is below the revenue maximizing reserve price r0. Thus, risk aversion raises public reserve prices, but lowers secret reserve prices. Further, we show that an optimal public reserve price is smaller than the secret reserve price (i.e., rP
    Keywords: Risk Aversion; Public and secret reserve prices; Endogenous entry; Second-price auctions
    JEL: D44
    Date: 2016–12
  13. By: Anton Bondarev; Alfred Greiner (University of Basel)
    Abstract: In this paper we analyze the dynamics of an R&D di erential game allowing for technological spillovers and sigmoid learning functions of multiproduct oligopolies. We demonstrate how the presence of learning together with spillovers may generate a rich set of outcomes, varying from constant leadership to catching-up and falling behind as well as from technology lock-in to a situation with a large number of high quality products. These types of outcomes are qualitatively di erent both from the single rm dynamics with learning and from the duopoly case with spillovers and without learning.
    Keywords: endogenous market structure; learning by doing; technological spillovers; heterogeneous innovations; differential games
    JEL: C61 C73 L13 L16 O32 O33
    Date: 2017

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