nep-gth New Economics Papers
on Game Theory
Issue of 2017‒10‒15
seventeen papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Evolutionary Games and Matching Rules By Jensen, Martin Kaae; Rigos, Alexandros
  2. Organizational Refinements of Nash Equilibrium By Takashi Kamihigashi; Kerim Keskin; Cagri Saglam
  3. Interval Solutions for Tu-games By Rene (J.R.) van den Brink; Osman Palanci; S. Zeynep Alparslan Gok
  4. Profit-Sharing and Implementation of Efficient Outcomes By Ruben Juarez; Kohei Nitta
  5. The evolution of taking roles By Florian Herold; Christoph Kuzmics
  6. Understanding the artwork pricing: some theoretical models By Francesco Angelini; Massimiliano Castellani
  7. Auctions and Leaks: A Theoretical and Experimental Investigation Auctions and Leaks: A Theoretical and Experimental Investigation By Sven Fischer; Werner Güth; Todd R. Kaplan; Ro'i Zultan
  8. Contagion in Stable Networks By Spiros Bougheas
  9. Asylum providers: Hawks or Doves? By Yuji Tamura
  10. Power illusion in coalitional bargaining: An experimental analysis By Maaser, Nicola; Traub, Stefan; Paetzel, Fabian
  11. Multi-Lateral Strategic Bargaining Without Stationarity By Alos-Ferrer, Carlos; Ritzberger, Klaus
  12. A Note on Gale, Kuhn, and Tucker's Reductions of Zero-Sum Games By Shuige Liu
  13. R&D Investments under Endogenous Cluster Formation By Dawid, Herbert; Hellmann, Tim
  14. Entitlement theory of justice and end-state fairness in the allocation of goods By Biung-Ghi Ju; Juan D. Moreno-Ternero
  15. Inference on Auctions with Weak Assumptions on Information By Vasilis Syrgkanis; Elie Tamer; Juba Ziani
  16. Liquidity risk in markets with trading frictions: What can swing pricing achieve? By Ulf Lewrick; Jochen Schanz
  17. Is the price right? Swing pricing and investor redemptions By Ulf Lewrick; Jochen Schanz

  1. By: Jensen, Martin Kaae (Department of Economics, University of Leicester); Rigos, Alexandros (Department of Economics, Lund University)
    Abstract: This study considers evolutionary models with non-uniformly random matching when interaction occurs in groups of n>=2 individuals. In such models, groups with different compositions of individuals generally co-exist and the reproductive success (fitness) of a specific strategy – and consequently long-run behavior in the population – varies with the frequencies of different group types. These frequencies crucially depend on the particular matching process at hand. Two new equilibrium concepts are introduced: Nash equilibrium under a matching rule (NEMR) and evolutionarily stable strategy under a matching rule (ESSMR). When matching is uniformly random, these reduce to Nash equilibrium and evolutionarily stable strategy, respectively. Several results that are known to hold for population games under uniform random matching carry through to our setting. In our most novel contribution, we derive results on the efficiency of the Nash equilibria of population games and show that for any (fixed) payoff structure, there always exists some matching rule leading to average fitness maximization in NEMR. Finally, we provide a series of applications to commonly studied normal-form games.
    Keywords: evolutionary game theory; evolutionarily stable strategy; ESS; non-uniformly random matching
    JEL: C72 C73
    Date: 2017–09–28
  2. By: Takashi Kamihigashi (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Kerim Keskin (Department of Economic, Kadir Has University, Turkey); Cagri Saglam (Department of Economics, Bilkent University, Turkey)
    Abstract: Strong Nash equilibrium (see Aumann, 1959) and coalition-proof Nash equilibrium (see Bernheim et al., 1987) rely on the idea that players are allowed to form coalitions and make joint deviations. They both consider a case in which any coalition can be formed. Yet there are many real-life examples where the players cannot form certain types of coalitions/subcoalitions. There may also be instances, when all coalitions are formed, where conflicts of interest arise and prevent a player from choosing an action that simultaneously meets the requirements of the two coalitions to which he or she belongs. Here we address these criticisms by studying an organizational framework where some coalitions/subcoalitions are not formed and where the coalitional structure is formulated in such a way that no conflicts of interest remain. We define an organization as a collection of partitions of a set of players ordered in such a way that any partition is coarser than the partitions that precede it. For a given organization, we introduce the notion of organizational Nash equilibrium. We analyze the existence of equilibrium in a subclass of games with strategic complementarities and illustrate how the proposed notion refines the set of Nash equilibria in some examples of normal form games.
    Keywords: Nash Equilibrium, Refinements, Coalitional Structure, Organizational Structure, Games with Strategic Complementarities
    JEL: C72
    Date: 2017–10
  3. By: Rene (J.R.) van den Brink (VU Amsterdam; Tinbergen Institute, The Netherlands); Osman Palanci (Suleyman Demirel University, Isparta, Turkey); S. Zeynep Alparslan Gok (Suleyman Demirel University, Isparta, Turkey)
    Abstract: Standard solutions for TU-games assign to every TU-game a payoff vector. However, if there is uncertainty about the payoff allocation then we cannot just assign a specific payoff to every player. Therefore, in this paper we introduce interval solutions for TU-games which assign to every TU-game a vector of payoff intervals. Since the solution we propose uses marginal vectors of the interval game, we need to apply a difference operator on intervals. Applying the subtraction operator of Moore (1979), we define an interval solution for TU-games, and we provide an axiomatization.
    Keywords: Cooperative TU-game; interval game; Moore subtraction; Moore-Shapley interval solution.
    JEL: C71
    Date: 2017–10–06
  4. By: Ruben Juarez (Department of Economics, University of Hawaii); Kohei Nitta (Department of Economics, Toyo University)
    Abstract: Agents are endowed with time that is invested in different projects that generate profit depending on the allocation of time by the agents. A mechanism divides the profit generated by the projects among agents depending on the allocation of time as well as the amount of profit that every project generates. We study mechanisms that incentivize agents to contribute their time to the level that generates the maximal aggregate profit at the Nash equilibrium regardless of the production functions (efficiency). Our main result is the characterization of all the mechanisms that satisfy efficiency. Furthermore, within this class, a narrow class of mechanisms are monotone in the payoffs of the agents with respect to the addition of agents, time or projects.
    Keywords: Profit-sharing, Efficiency, Implementation.
    JEL: C72 D44 D71 D82
    Date: 2017–05
  5. By: Florian Herold (University of Bamberg, Germany); Christoph Kuzmics (University of Graz, Austria)
    Abstract: Individuals are randomly matched to play an ex-ante symmetric hawk-dove game. Individuals assume one of a finite set of observable labels and condition their action choice on their opponent's label. We study the evolutionary stability of chosen labels and their social interaction structure. Evolutionary stable social structures are different for games in which a dove player prefers the opponent to play hawk (anti-coordination games), and those in which everyone prefers their opponent to play dove (confl ict games). Non-trivial hierarchical social structures can only emerge in anti-coordination games. Egalitarian social structures can emerge in both, but are more fragile in con flict games.
    Keywords: Evolution; Hawk-Dove Games; Roles
    JEL: C72 C73
    Date: 2017–09
  6. By: Francesco Angelini (Department of Economics, University of Bologna, Italy); Massimiliano Castellani (Department of Economics, University of Bologna, Italy; The Rimini Centre for Economic Analysis)
    Abstract: This paper analyses the pricing of artworks created by an artist and sold for the first time in the art market, investigating the price-formation mechanism at work in the private art market. Assuming price-maximizing agents with both full and asymmetric information on market powers and reserve prices, a bargaining game theory approach is used to explore all possible channels (paths) that a new artwork can take to reach a collector or an auction house. The paper aims to identify the relationships between the artwork prices and the market power of agents operating in each channel of the market, and analyse the role information on private art market price formation. In the full-information model, the market power of each agent is key to identify the market channel that will be preferred by the artist and, then, her incentive in creating a new artwork. In the asymmetric-information model, assuming artists, galleries, and collectors have different levels of information on the quality of the artworks and on the characteristics of the artists, the potential disappointment for the sophisticated collectors and undertreatment for the unsophisticated ones emerge.
    Keywords: cultural economics, fame, talent, bargaining, information
    JEL: C78 D82 D91 Z11
    Date: 2017–10
  7. By: Sven Fischer (Newcastle University Business School); Werner Güth (LUISS Rome, Frankfurt School of Finance and Management, and Max Planck Institute on Collective Goods Bonn); Todd R. Kaplan (University of Exeter and University of Haifa); Ro'i Zultan (Ben-Gurion University of the Negev)
    Abstract: (Revised Version of JERP 2014-027) In first- and second-price private value auctions with sequential bidding, second movers may discover the first movers' bid. Equilibrium behavior in the first-price auction is mostly unaffected but there are multiple equilibria in the second- price auction. Consequently, comparative statics across price rules are equivocal. Experimentally, leaks in the first-price auction favor second movers but harm first movers and sellers, as theoretically predicted. Low to medium leak probabilities eliminate the usual revenue dominance of first-over second-price auctions. With a high leak probability, second-price auctions generate significantly more revenue.
    Keywords: auction, espionage, collusion,, laboratory experiment
    JEL: C72 C91 D44
    Date: 2017–10–04
  8. By: Spiros Bougheas (School of Economics, University of Nottingham)
    Abstract: We study the formation of networks in environments where agents derive benefits from other agents directly linked to them but suffer losses through contagion when any agent on a path connected to them is hit by a shock. We first consider networks with undirected links (e.g. epidemics, underground resistance organizations, trade networks) where we find that stable networks are comprised of completely connected disjoint subnetworks. Then, we consider networks with directed links and we find that the completely connected network is stable, although, its exact structure, and thus contagion implications, is sensitive to parameter values for costs and benefits. Lastly, we introduce aggregate externalities (e.g. fire sales for the case of financial networks) and we find that stable networks can be asymmetric, connected but not completely connected, thus capturing the main features of inter-industry and financial networks.
    Keywords: Network Formation, Stability, Contagion
    JEL: C72 D85
    Date: 2017–09
  9. By: Yuji Tamura
    Abstract: I examine the subgame-perfect Nash equilibrium of an asylum provision game in pure strategies, assuming that asylum is an international public good. An equilibrium does not necessarily exist because the players. payo¤s are not quasiconcave. When an equilibrium exists, it is either unique or multiple. When multiple equilibria arise, the game is a variant of hawk-dove game. Multiple equilibria suggest the counter-intuitive possibility that the more popular destination is more open to refugees even though openness is not modeled to boost popularity.
    Keywords: asylum seekers, refugee protection, international public goods, chicken game
    JEL: F22 F53 H87 O15
    Date: 2017–10
  10. By: Maaser, Nicola; Traub, Stefan; Paetzel, Fabian
    Abstract: In real world bargaining the distribution of seats or voting weights often does not accurately reflect real power. Game-theory predictions are insensitive to nominal differences. We refer to the converse idea that nominal differences matter as power illusion. We experimentally study the Baron-Ferejohn model with variation in nominal power. We find strong evidence for the existence of power illusion. Thus, attention needs to be paid to nominal power in the design of weighted voting systems.
    JEL: D72 C92 C7
    Date: 2017
  11. By: Alos-Ferrer, Carlos (Department of Economics, University of Cologne); Ritzberger, Klaus (Royal Holloway, University of London)
    Abstract: This paper establishes existence of subgame perfect equilibrium for a general class of sequential multi-lateral bargaining games. The only required hypothesis is that utility functions are continuous on the space of economic outcomes. In particular, no assumption on the space of feasible payoffs is needed. The result covers arbitrary and even time-varying bargaining protocols (acceptance rules), arbitrary specifications of patience or impatience (geometric, hyperbolic, or otherwise), externalities, multiple selves, and other-regarding preferences.
    Keywords: bargaining, equilibrium existence, infinite-horizon games, subgame perfection
    Date: 2017–08
  12. By: Shuige Liu
    Abstract: Gale, Kuhn and Tucker (1950) introduced two ways to reduce a zero-sum game by packaging some strategies with respect to a probability distribution on them. In terms of value, they gave conditions for a desirable reduction. We show that a probability distribution for a desirable reduction relies on optimal strategies in the original game. Also, we correct an improper example given by them to show that the reverse of a theorem does not hold.
    Date: 2017–10
  13. By: Dawid, Herbert; Hellmann, Tim
    Abstract: We study investments in R&D and the formation of R&D clusters of firms which are competitors in the market. Firms first decide on long-term R&D investment, then form research clusters according to the unanimity game, and finally compete in quantities. Equilibria with no-investment might co-exist with equilibria where a large fraction of firms invest in R&D. Firms tend to over-invest compared to a scenario where research clusters are ex-ante fixed and also compared to the welfare optimum.
    JEL: C71 C72 L13 O30
    Date: 2017
  14. By: Biung-Ghi Ju (Department of Economics, Seoul National University); Juan D. Moreno-Ternero (Department of Economics, Universidad Pablo de Olavide; CORE, Université catholique de Louvain)
    Abstract: Robert Nozick allegedly introduced his liberal theory of private ownership as an objection to theories of end-state justice. Nevertheless, we show that, in a stylized framework for the allocation of goods in joint ventures, both approaches can be seen as complementary. More precisely, in such a context, self-ownership (the basis for Nozick's entitlement theory of justice) followed by voluntary transfer (Nozick's principle of just transfer) can lead to end-state fairness (as well as Pareto efficiency). Furthermore, under a certain solidarity condition, the only way to achieve end-state fairness, following Nozick's procedure, is to endorse an egalitarian rule for the initial assignment of rights.
    Keywords: entitlement theory of justice; end-state fairness; self-ownership; fairness; no-envy;
    JEL: D63
    Date: 2017–10
  15. By: Vasilis Syrgkanis; Elie Tamer; Juba Ziani
    Abstract: Given a sample of bids from independent auctions, this paper examines the question of inference on auction fundamentals (e.g. valuation distributions, welfare measures) under weak assumptions on information structure. The question is important as it allows us to learn about the valuation distribution in a robust way, i.e., without assuming that a particular information structure holds across observations. We leverage recent contributions in the robust mechanism design literature that exploit the link between Bayesian Correlated Equilibria and Bayesian Nash Equilibria in incomplete information games to construct an econometrics framework for learning about auction fundamentals using observed data on bids. We showcase our construction of identified sets in private value and common value auctions. Our approach for constructing these sets inherits the computational simplicity of solving for correlated equilibria: checking whether a particular valuation distribution belongs to the identified set is as simple as determining whether a linear program is feasible. A similar linear program can be used to construct the identified set on various welfare measures and counterfactual objects. For inference and to summarize statistical uncertainty, we propose novel finite sample methods using tail inequalities that are used to construct confidence regions on sets. We also highlight methods based on Bayesian bootstrap and subsampling. A set of Monte Carlo experiments show adequate finite sample properties of our inference procedures. We also illustrate our methods using data from OCS auctions.
    Date: 2017–10
  16. By: Ulf Lewrick; Jochen Schanz
    Abstract: Open-end mutual funds expose themselves to liquidity risk by granting their investors the right to daily redemptions at the fund's net asset value. We assess how swing pricing can dampen such risks by allowing the fund to settle investor orders at a price below the fund's net asset value. This reduces investors' incentive to redeem shares and mitigates the risk of large destabilising outflows.Optimal swing pricing balances this risk with the benefit of providing liquidity to cash-constrained investors. We derive bounds, depending on trading costs and the share of liquidity-constrained investors, within which a fund chooses to swing the settlement price. We also show how the optimal settlement price responds to unanticipated shocks. Finally, we discuss whether swing pricing can help mitigate the risk of self-fulfilling runs on funds.
    Keywords: Financial stability, mutual funds, regulation, liquidity insurance, trading frictions
    JEL: G01 G23 G28 C72
    Date: 2017–10
  17. By: Ulf Lewrick; Jochen Schanz
    Abstract: How effective are available policy tools in managing liquidity risks in the mutual fund industry? We assess one such tool - swing pricing - which allows funds to adjust their settlement price in response to large net flows. Our empirical analysis exploits the fact that swing pricing is available to Luxembourg funds, but not yet to U.S. funds. We show that swing pricing dampens outflows in reaction to weak fund performance, but has a limited effect during stress episodes. Furthermore, swing pricing supports fund returns, while raising accounting volatility, and may lead to lower cash buffers.
    Keywords: Financial stability, mutual funds, regulation, market liquidity
    JEL: G01 G23 G28 C72
    Date: 2017–10

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