nep-gth New Economics Papers
on Game Theory
Issue of 2017‒09‒17
ten papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Ambiguity and the Centipede Game: Strategic Uncertainty in Multi-Stage Games By Eichberger, Jürgen; Grant, Simon; Kelsey, David
  2. The Attack and Defense of Weakest-Link Networks By Dan Kovenock; Brian Roberson; Roman M. Sheremeta
  3. Mixed Duopoly: Differential Game Approach By Koichi Futagami; Toshihiro Matsumura; Kizuku Takao
  4. Strategy-proofness in the Large By Eduardo M. Azevedo; Eric Budish
  5. What situation is this? Coarse cognition and behavior over a space of games. By Robert Gibbons; Marco LiCalzi; Massimo Warglien
  6. Stability, Fairness and Random Walks in the Bargaining Problem By Jakob Kapeller; Stefan Steinerberger
  7. The role of correlation in two-asset games: Some experimental evidence By Martin Geiger; Richard Hule
  8. Interim Self-Stable Decision Rules By Daeyoung Jeong; Semin Kim
  9. Electoral Contests with Dynamic Campaign Contributions By Andrea Mattozzi; Fabio Michelucci
  10. On the emergence of a sanctioning institution By Adriana Alventosa; Gonzalo Olcina

  1. By: Eichberger, Jürgen; Grant, Simon; Kelsey, David
    Abstract: We propose a solution concept for a class of extensive form games with ambiguity. Specifically we consider multi-stage games. Players have CEU preferences. The associated ambiguous beliefs are revised by Generalized Bayesian Updating. We assume individuals take account of possible changes in their preferences by using consistent planning. We show that if there is ambiguity in the centipede game it is possible to sustain 'cooperation' for many periods as part of a consistent-planning equilibrium under ambiguity. In a non-cooperative bargaining game we show that ambiguity may be a cause of delay in bargaining.
    Date: 2017–09–11
  2. By: Dan Kovenock (Economic Science Institute); Brian Roberson (Purdue University, Department of Economics, Krannert School of Management); Roman M. Sheremeta (Weatherhead School of Management, Case Western Reserve University and Economic Science Institute, Chapman University)
    Abstract: We experimentally test the qualitatively different equilibrium predictions of two theoretical models of attack and defense of a weakest-link network of targets. In such a network, the attacker’s objective is to successfully attack at least one target and the defender’s objective is to defend all targets. The models differ in how the conflict at each target is modeled — specifically, the lottery and auction contest success functions (CSFs). Consistent with equilibrium in the auction CSF model, attackers utilize a stochastic “guerrilla-warfare” strategy, which involves randomly attacking at most one target with a random level of force. Inconsistent with equilibrium in the lottery CSF model, attackers use the “guerrilla-warfare” strategy and attack only one target instead of the equilibrium “complete-coverage” strategy that attacks all targets. Consistent with equilibrium in both models, as the attacker’s valuation increases, the average resource expenditure, the probability of winning, and the average payoff increase (decrease) for the attacker (defender).
    Keywords: Colonel Blotto, weakest-link, best-shot, multi-dimensional resource allocation, experiments
    JEL: C72 C91 D72 D74
    Date: 2017
  3. By: Koichi Futagami (Osaka University); Toshihiro Matsumura (The University of Tokyo; Osaka University); Kizuku Takao (Aomori Public University)
    Abstract: Previous studies in differential games reveal that intertemporal strategic behaviors have an important role for various economic problems. However, most of their analyses are limited to cases where objective functions are identical among agents. In this paper, we characterize the open-loop Nash equilibrium and the Markov perfect Nash equilibrium of a mixed duopoly game where a fully or partially state-owned firm and a fully private rm compete in the quantities of homogeneous goods with sticky prices. We show that in the Markov perfect Nash equilibrium, an increase in the governments' share-holdings of the state-owned firm has a non-monotonic effect on the price, and in a wide range of parameter spaces, it increases the price. These results are derived from the interaction of an asymmetric structure of agents' objectives and inter-temporal strategic behaviors, which are in sharp contrast with those in the open-loop Nash equilibrium. We provide new implications for privatization policies in the presence of dynamic interactions, against the static analyses.
    Keywords: Mixed Duopoly, Open-loop Nash equilibrium, Markov Perfect Nash equilibrium
    JEL: C73 D43 L32
    Date: 2017–04
  4. By: Eduardo M. Azevedo; Eric Budish
    Abstract: We propose a criterion of approximate incentive compatibility, strategy-proofness in the large (SP-L), and argue that it is a useful second-best to exact strategy-proofness (SP) for market design. Conceptually, SP-L requires that an agent who regards a mechanism’s “prices” as exogenous to her report – be they traditional prices as in an auction mechanism, or price-like statistics in an assignment or matching mechanism – has a dominant strategy to report truthfully. Mathematically, SP-L weakens SP in two ways: (i) truth-telling is required to be approximately optimal (within epsilon in a large enough market) rather than exactly optimal, and (ii) incentive compatibility is evaluated ex interim, with respect to all full-support i.i.d. probability distributions of play, rather than ex post with respect to all possible realizations of play. This places SP-L in between the traditional notion of approximate strategy-proofness, which evaluates incentives to manipulate ex post, and the traditional notion of approximate Bayes-Nash incentive compatibility, which evaluates incentives to manipulate ex interim with respect to the single common-knowledge probability distribution associated with Bayes-Nash equilibrium.
    JEL: C72 C78 D44 D82
    Date: 2017–09
  5. By: Robert Gibbons (Massachusetts Institute of Technology); Marco LiCalzi (Dept. of Management, Università Ca' Foscari Venice); Massimo Warglien (Dept. of Management, Università Ca' Foscari Venice)
    Abstract: We study strategic interaction between agents who distill the complex world around them into simpler situations. Assuming agents share the same cognitive frame, we show how the frame affects equilibrium outcomes. In one-shot and repeated interactions, the frame causes agents to be either better or worse off than if they could perceive the environment in full detail: it creates a fog of cooperation or a fog of conflict. In repeated interaction, the frame is as important as agentsÕ patience in determining the set of equilibria: for a fixed discount factor, when all agents coordinate on what they perceive as the best equilibrium, there remain significant performance differences across dyads with different frames. Finally, we analyze some tensions between incremental versus radical changes in the cognitive frame.
    Keywords: categorization, frame, mental model, small world, culture, leadership.
    JEL: C79 D01 D23 L14 M14
    Date: 2017–09
  6. By: Jakob Kapeller; Stefan Steinerberger
    Abstract: We study the classical bargaining problem and its two canonical solutions, (Nash and Kalai-Smorodinsky), from a novel point of view: we ask for stability of the solution if both players are able distort the underlying bargaining process by reference to a third party (e.g. a court). By exploring the simplest case, where decisions of the third party are made randomly we obtain a stable solution, where players do not have any incentive to refer to such a third party. While neither the Nash nor the Kalai-Smorodinsky solution are able to ensure stability in case reference to a third party is possible, we found that the Kalai-Smorodinsky solution seems to always dominate the stable allocation which constitutes novel support in favor of the latter.
    Date: 2017–08
  7. By: Martin Geiger; Richard Hule
    Abstract: In our experimental setting, participants face the decision to invest into two assets which are subject to correlated information. While fundamental states and signals about fundamental states are correlated, success and default of the investment projects is determined separately. Nevertheless, correlation of signals may give rise to spillovers through informational contagion since participants may overvalue correlated signals resulting from a double-counting problem in the updating process or may be prone to behavioral biases related to good and bad news. Quite strikingly, in our setting, the degree of correlation does not promote pronounced contagious effects. In particular, this is consistent with the theoretical two-dimensional global games solution of the underlying investment game. However, a heuristic of neglecting correlation and signals about the second asset has also merits to explain participants' investment behavior. In some treatments we can distinguish between participants' strategies being derived from the two- dimensional global game and from a heuristic being derived from a one- dimensional game. We cannot reject that people play the two-dimensional investment game as it would be two separate one-dimensional games and ignore correlation.
    Keywords: global games, creditor coordination, experimental economics
    JEL: C91 D82 G12
    Date: 2017–09–05
  8. By: Daeyoung Jeong (The Bank of Korea); Semin Kim (Yonsei University)
    Abstract: This study identi es a set of interim self-stable decision rules. In our model, individual voters encounter two separate decisions sequentially: (1) a decision on the change of a voting rule they are going to use later and (2) a decision on the nal voting outcome under the voting rule which has been decided from the prior procedure. A given decision rule is self-stable if any other possible rule does not get enough votes to replace the given rule under the given rule itself. We fully characterize the set of interim self-stable decision rules among weighted majority rules with given weights.
    Keywords: Weighted majority rules, decision rules, self-stability
    JEL: C72 D02 D72 D82
    Date: 2017–09
  9. By: Andrea Mattozzi; Fabio Michelucci
    Abstract: We study a two-period dynamic principal agent model in which two agents with different unobservable abilities compete in a contest for a single prize. A risk-neutral principal can affect the outcome of the contest by dividing a given budget between agents in each period and her net payoff depends on the rela- tive share of the budget given to the winner of the contest. We analyze two settings that differ by the presence/absence of moral hazard. The results we derive are consistent with stylized facts regarding the dynamics of US campaign contributions.
    Keywords: dynamic games; contests; experimentation; lobbies; campaign contributions
    JEL: D72 D78 C72 C73
    Date: 2017–08
  10. By: Adriana Alventosa (Universidad de Valencia. ERI-CES); Gonzalo Olcina (ERICES and University of Valencia)
    Abstract: This paper theoretically studies the emergence of a sanctioning institution in a selfish and wealth-diverse group where the provision of a public good is realized only once. In particular, we present a public goods game where players are given the opportunity to implement a sanctioning institution by hiring an external enforcer which sanctions free-riding behavior. However, the enforcer's effectiveness will not be guaranteed and will depend on the level of effort he exerts to chase these opportunistic attitudes. Whether the sanctioning institution is implemented or not is a task delegated to a government concerned in its persistence, who will represent the interests of a social class with a particular level of wealth. The emergence of the sanctioning institution will depend on a set of institutional and technological parameters, the wealth distribution in the society and the identity of the social class whose interests are represented by the government. Given these exogenous variables, the sanctioning institution will emerge more easily if the government represents the social class with the lowest opportunity cost in the provision of a public good. If implemented, the sanctioning institution can achieve a positive provision of such good if the society counts with a relatively high quality in its sanctioning institutions and high social return of the public good. The case of heterogeneous valuations of the public good will also be proved to show symmetric results.
    Keywords: public goods game, cooperation, wealth inequality, pool punishment, moral hazard.
    JEL: C72 D02 H41
    Date: 2017–09

This nep-gth issue is ©2017 by László Á. Kóczy. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.