nep-gth New Economics Papers
on Game Theory
Issue of 2017‒02‒26
sixteen papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Equilibria in Infinite Games of Incomplete Information By Oriol Carbonell-Nicolau
  2. Perfect Equilibria in Games of Incomplete Information By Oriol Carbonell-Nicolau
  3. Belief-Free Rationalizability and Informational Robustness By Dirk Bergemann; Stephen Morris
  4. Beyond the Spanish MIR with Consent: (Hidden) Cooperation and Coordination in Matching By Alcalde, José
  5. A Theory of Sequential Group Reciprocity By Moreno-Okuno, Alejandro T.; Mosiño, Alejandro
  6. Stability and Efficiency in Decentralized Two-Sided Markets with Weak Preferences By Radoslav Raykov
  7. Equal Awards versus Equal Losses in Bankruptcy Problems By Alcalde, José; Peris, Josep E.
  8. Coevolution of Cooperation, Preferences and Cooperative Signals in Social Dilemmas. By Müller, Stephan; von Wangenheim, Georg
  9. Communication Games with Optional Verification By Simon Schopohl
  10. Dynamic contracting: an irrelevance theorem By Péter Eső; Balázs Szentes
  11. How do people reason in dynamic games? By Chlaß, Nadine; Perea, Andrés
  12. Local public goods as perfect substitutes -- centralization vs. decentralization By Maier, Carl
  13. Capacity precommitment and price transparency platforms. Theoretical benchmark and experimental evidence By Stadler, Manfred; Güth, Werner; Zaby, Alexandra
  14. Feelings of Ownership in Dictator Games By Korenok Oleg; Edward L. Millner; Laura Razzolini
  15. Premium Auctions in the Field By Sander Onderstal
  16. An experimental investigation of rating-market regulation By Özgümüs, Asri; Keser, Claudia; Peterlé, Emmanuel; Schmidt, Martin

  1. By: Oriol Carbonell-Nicolau (Rutgers University)
    Abstract: The notion of communication equilibrium extends Aumann’s [3] correlated equilibrium concept for complete information games to the case of incomplete information. This paper shows that this solution concept has the following property: for the class of incomplete information games with compact metric type and action spaces and payoff functions jointly measurable and continuous in actions, limits of Bayes-Nash equilibria of finite approximations to an infinite game are communication equilibria (and in general not Bayes-Nash equilibria) of the limit game. Another extension of Aumann’s [3] solution concept to the case of incomplete information fails to satisfy this condition.
    Keywords: infinite games of incomplete information, Bayes-Nash equilibrium, communication equilibrium, correlated equilibrium, strategic approximation of an infinite game
    JEL: C72
    Date: 2017–02–20
  2. By: Oriol Carbonell-Nicolau (Rutgers University)
    Abstract: We obtain conditions on the primitives of a Bayesian game with infinitely many types and/or strategies that ensure the existence of a perfect Bayes-Nash equilibrium. The main existence results are illustrated in the context of all-pay auctions.
    Keywords: infinite game of incomplete information, perfect Bayes-Nash equilibrium, payoff security
    JEL: C72
    Date: 2017–02–20
  3. By: Dirk Bergemann (Cowles Foundation, Yale University); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: Fixing a game with uncertain payoffs, information design identifies the information structure and equilibrium that maximizes the payoff of an information designer. We show how this perspective unifies existing work, including that on communication in games (Myerson (1991)), Bayesian persuasion (Kamenica and Gentzkow (2011)) and some of our own recent work. Information design has a literal interpretation, under which there is a real information designer who can commit to the choice of the best information structure (from her perspective) for a set of participants in a game. We emphasize a metaphorical interpretation, under which the information design problem is used by the analyst to characterize play in the game under many different information structures.
    Keywords: Information design, Bayesian persuasion, correlated equilibrium, incomplete information, robust predictions, information structure
    JEL: C72 D82 D83
    Date: 2017–02
  4. By: Alcalde, José (University of Alicante, D. Quantitative Methods and Economic Theory)
    Abstract: Sequential mechanisms to solve matching problems are useful to promote (hidden) cooperation between agents. Taking as a starting point the MIR mechanism, employed in Spain to match medical students and residency programs (in privately owned hospitals), we find that: (1) In the current system, where the number of students that each program might enroll is limited, the single equilibrium allocation can be unstable. (2) When the above limit is not (formally) imposed,instability is not expected to occur. Nevertheless, the multiplicity of equilibria shows that coordination failure might emerge, generating a social welfare loss. (3) When the role of students and hospitals is reversed in the MIR mechanism, (hidden) cooperation is guaranteed. Moreover, coordination failure disappears.
    Keywords: MIR Mechanism; Hidden Cooperation; Coordination
    JEL: C78 D61 D71 D78
    Date: 2017–02–21
  5. By: Moreno-Okuno, Alejandro T.; Mosiño, Alejandro
    Abstract: Games that appear to be independent, involving none of the same players, may be related by emotions of reciprocity between the members of the same groups. In the real world, individuals are members of groups and want to reward or punish those groups whose members have been kind or unkind to members of their own. In this paper we extend Dufwenberg and Kirchsteiger's model of sequential reciprocity (2004) to groups of individuals and define a new "sequential group reciprocity equilibrium" for which we prove its existence. We study the case of two games with two players in each game, where each player belongs to the same group as a player in the other game. We show that when the payoffs of one game are much higher than the payoffs of the other, the outcome of the game with higher payoffs determines the outcome of the other game. We also find that when the payoffs are very asymmetric, the outcome where the sum of the payoffs is maximized is a sequential group reciprocity equilibrium.
    Keywords: Fairness, Groups, Psychological Games, Game Theory
    JEL: A12 C60 D63
    Date: 2017–02–19
  6. By: Radoslav Raykov
    Abstract: Many decentralized markets are able to attain a stable outcome despite the absence of a central authority (Roth and Vande Vate, 1990). A stable matching, however, need not be efficient if preferences are weak. This raises the question whether a decentralized market with weak preferences can attain Pareto efficiency in the absence of a central matchmaker. I show that when agent tastes are independent, the random stable match in a large-enough market is asymptotically Pareto efficient even with weak preferences. In fact, even moderate-sized markets can attain good efficiency levels. The average fraction of agents who can Pareto improve is below 10% in a market of size n = 79 when one side of the market has weak preferences; when both sides have weak preferences, the inefficiency falls below 10% for n > 158. This implies that approximate Pareto efficiency is attainable in a decentralized market even in the absence of a central matchmaker.
    Keywords: Economic models
    JEL: C78 D61
    Date: 2017
  7. By: Alcalde, José (University of Alicante, D. Quantitative Methods and Economic Theory); Peris, Josep E. (University of Alicante, D. Quantitative Methods and Economic Theory)
    Abstract: The Constrained Equal Awards and Equal Losses rules are traditional ways to solve bankruptcy problems. These rules are characterized by two parameters α and β that represent, respectively, the maximum amount a claimant receives, or the maximum amount a claimant loses. Moreover, these rules define a partition in the set of agents: those who are equally rationed, and those sustaining a lower rationing (because their maximal award and maximal loss cannot exceed their claim). We investigate the relationship between α and β, and the corresponding partitions they originate in the set of agents, by using a characteristic τ measuring the relative degree of conflict.
    Keywords: Bankruptcy Problem; Relative Degree of Conflict
    JEL: C71 D63 D71
    Date: 2017–02–21
  8. By: Müller, Stephan; von Wangenheim, Georg
    Abstract: We study the coevolution of cooperation, preferences and cooperative signals in an environment where individuals engage in a signaling-extended Prisoner's Dilemma. We identify a new type of evolutionary equilibrium -- a transitional equilibrium -- which is constituted and stabilized by the dynamic interaction of multiple Bayesian equilibria. A transitional equilibrium: (1) exists under mild conditions and (2) can stabilize a population that is characterized by the heterogeneity of behavior, preferences, and signaling. We thereby offer an explanation for persistent regularities observed in laboratory and field data on cooperative behavior. Furthermore, this type of equilibria is least demanding with respect to differences in signaling cost between `conditional cooperators' and `opportunists'. Indeed and quite surprisingly, a transitional equilibrium is consistent with `conditional cooperators' bearing higher signaling cost in terms of fitness than `opportunists'.
    JEL: C73 D64 D82
    Date: 2016
  9. By: Simon Schopohl (EDEEM - Université Paris 1, Universität Bielefeld and Université Catholique de Louvain)
    Abstract: We consider a Sender-Receiver game in which the Sender can choose between sending a cheap-talk message, which is costless, but also not verified and a costly verified message. While the Sender knows the true state of the world, the Receiver does not have this information, but has to choose an action depending on the message he receives. The action then yields to some utility for Sender and Receiver. We only make a few assumptions about the utility functions of both players, so situations may arise where the Sender's preferences are such that she sends a message trying to convince the Receiver about a certain state of the world, which is not the true one. In a finite setting we state conditons for full revelation, i.e. when the Receiver always learns the truth. Furthermore we describe the player's behavior if only partial revelation is possible. For a continuous setting we show that additional conditions have to hold and that these do not hold for “smooth” preferences and utility, e.g. in the classic example of quadratic loss utilities
    Keywords: cheap-talk; communication; costly disclosure; full revelation; increasing differences; Sender-Receiver game; verifiable information
    JEL: C72 D82
    Date: 2017–01
  10. By: Péter Eső; Balázs Szentes
    Abstract: This paper generalizes a conceptual insight in dynamic contracting with quasilinear payoffs: the principal does not need to pay any information rents for extracting the agent's “new” private information obtained after signing the contract. This is shown in a general model in which the agent's type stochastically evolves over time, and her payoff (which is linear in transfers) depends on the entire history of private and any contractible information, contractible decisions, and her hidden actions. The contract is offered by the principal in the presence of initial informational asymmetry. The model can be transformed into an equivalent one where the agent's subsequent information is independent in each period (type orthogonalization). We show that for any fixed decision–action rule implemented by a mechanism, the agent's rents (as well as the principal's maximal revenue) are the same as if the principal could observe and contract on the agent's orthogonalized types after the initial period. We also show that any monotonic decision–action rule can be implemented in a Markovian environment satisfying certain regularity conditions, and we provide a simple “recipe” for solving such dynamic contracting problems.
    JEL: D82 D83 D86
    Date: 2017–01
  11. By: Chlaß, Nadine; Perea, Andrés
    Abstract: Do individuals choose how to a solve a dynamic game or is their mode of reasoning a type-like predisposition? We show experimentally that an individual’s propensity to forwardly or backwardly induct is a function of (i) her belief whether an opponent’s previous action was a trembling hand mistake or a rational choice, and (ii) her personality. In a two-stage game, the individual observes an action of a computerized opponent (stage 1) before both interact (stage 2). The opponent chooses rationally most of the time and makes random choices with a small commonly known likelihood. Hence, the opponent’s action in stage 1 discloses with some probability the opponent’s type (choice) in stage 2. The individual can either believe that (i) the opponent chose randomly in stage 1, or that (ii) the opponent made a rational choice. An individual rationally responds to this belief if she solves stage 2 by backwards induction in the first, and by forward induction in the second case.
    JEL: C73 C91 D82
    Date: 2016
  12. By: Maier, Carl
    Abstract: The main message of recent evaluations of decentralization efforts around the world is that these efforts were unable to generate the beneficial effects they were thought to induce. This finding constitutes a contrast to the rich body of literature on centralization and decentralization which was itself one driving factor of these efforts of decentralization. By arguing that (local) public goods can be viewed as perfect substitutes, this paper provides an explanation for these recent empirical findings and helps to reintegrate them into the theoretical literature on the subject. The main finding of this paper is that centralized and decentralized structures can induce identical provision levels of public goods. This ambivalence is generated by the interaction between electorates and representatives. Whereas both of these actors behave differently in the two scenarios, the overall outcomes are identical due to the leveling effects of strategic delegation. This finding is robust with respect to the assumption of a multistage government.
    JEL: H41 H77 C72
    Date: 2016
  13. By: Stadler, Manfred; Güth, Werner; Zaby, Alexandra
    Abstract: Price transparency in the sense of ‘more information for customers’ is known to increase efficiency. However, the introduction of price transparency platforms does not only providemore information for customers but also for rival firms—who may (mis)use the legal information channel to collude. We experimentally investigate transparency platforms in the context of a capacity-then-price setting game. Price transparency is implemented by allowing firms to send non-binding price messages after capacity but before price choices. As such messages are cheap talk they do not affect the subgame perfect equilibrium of the game. In our experiment, however, we find collusive price choices when price messages are possible, especially when they are truthful. While we find strong support for the theoretically predicted negative relation between capacities and prices, participants frequently install excessive capacities, which, in turn, induce collusive pricing behavior.
    JEL: C72 C91 L41
    Date: 2016
  14. By: Korenok Oleg (Department of Economics, VCU School of Business); Edward L. Millner (Department of Economics, VCU School of Business); Laura Razzolini (Department of Economics, VCU School of Business)
    Abstract: This paper determines if differences in feelings of ownership mediate the effect of changing who earns the endowment and the frame of actions on dictatorsÕ generosity. We conduct an experiment with two treatments. The Dictator Earns-Give treatment is designed to induce strong feelings of ownership, while the Recipient Earns-Take treatment induces weak feelings of ownership. We measure feelings of ownership in the two treatments. As expected, dictators report stronger feelings of ownership in the first treatment and these feelings mediate the dictatorÕs generosity. Moving from the Recipient Earns-Take treatment to the Dictator Earns-Give treatment indirectly reduces the payoff to the recipient by increasing the dictatorsÕ feelings of ownership.
    Keywords: dictator game; feelings of ownership; altruism
    JEL: C72 C91 D03
    Date: 2017–02
  15. By: Sander Onderstal (University of Amsterdam, The Netherlands)
    Abstract: In a field experiment, we study the revenue-generating properties of premium auctions. In a premium auction, the runner-up obtains a premium for driving up the price paid by the winner. Previous research, both theoretical and in the lab, has shown that the relative performance of premium auctions compared to standard auction formats is context-specific. In the experiment, we compare two types of premium auctions with the standard Vickrey auction selling high-quality, limited-edition posters in an online auction. We observe that neither premium auction raises higher revenue than the Vickrey auction. The variance of the revenue in the Amsterdam auction, one of the premium auctions, is lower than that in the Vickrey auction.
    Keywords: Premium auctions; field experiment
    JEL: C93 D44
    Date: 2017–02–20
  16. By: Özgümüs, Asri; Keser, Claudia; Peterlé, Emmanuel; Schmidt, Martin
    Abstract: We introduce a simple game-theoretical model that captures the main aspects of the repeated interaction between an issuer and a credit rating agency. The scenario is characterized by up-front payments of issuer-fees and regulatory sanctions for false rating. We chose parameters such that in the Bayesian Nash equilibrium the credit rating agency should always provide truthful ratings. Knowing this, the issuer should never request a rating. Conducting laboratory experiments, we find that issuers frequently request ratings, which in turn is reciprocated with a high proportion of untruthful “good” ratings, even though the credit rating agency faces (low or high) financial penalties for being untruthful. Our results are different from the game-theoretical prediction but they are in keeping with a “cooperative solution”, similar to the “deterrence theory” in Reinard Selten’s “chain store paradox” (Selten, 1978).
    JEL: C70 C90 G01
    Date: 2016

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