nep-gth New Economics Papers
on Game Theory
Issue of 2017‒11‒12
thirteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Kuhn's Theorem for Extensive Games with Unawareness By Burkhard Schipper
  2. Qualitative analysis of common belief of rationality in strategic-form games By Giacomo Bonanno; Elias Tsakas
  3. Strategic Teaching and Learning in Games By Burkhard Schipper
  4. Comprehensive Rationalizability By Aviad Heifetz; Martin Meier; Burkhard Schipper
  5. Self-Allocation in Contests By Axel Bernergard; Karl Wärneryd
  6. Disguising Lies - Image Concerns and Partial Lying in Cheating Games By Kiryl Khalmetski; Dirk Sliwka
  7. Political Awareness, Microtargeting of Voters, and Negative Electoral Campaigning By Burkhard Schipper; Hee Yeul Woo
  8. Facilitating the Search for Partners on Matching Platforms: Restricting Agents' Actions By Kanoria, Yash; Saban, Daniela
  9. Transboundary Externalities and Reciprocal Taxes: A Differential Game Approach By Charles F. Mason
  10. Public Goods and Public Bads By Wolfgang Buchholz; Richard Cornes; Dirk Rübbelke
  11. Using Cheap Talk to Polarize or Unify a Group of Decision Makers By Daeyoung Jeong
  12. Production and distribution in political-economic systems : a non-atomic game By Alex Coram
  13. Bargaining power and outside options in the interbank lending market By Abbassi, Puriya; Bräuning, Falk; Schulze, Niels

  1. By: Burkhard Schipper (Department of Economics, University of California Davis)
    Abstract: We extend Kuhn's Theorem to extensive games with unawareness. This extension is not entirely obvious: First, extensive games with non-trivial unawareness involve a forest of partially ordered game trees rather than just one game tree. An information set at a history in one tree may consist of histories in a less expressive tree. Consequently, perfect recall takes a more complicated form as players may also become aware of new actions during the play. Second, strategies can only be partially an object of ex-ante choice in games with unawareness. Finally, histories that a player may expect to reach with a strategy profile may not be the histories that actually occur with this strategy profile, requiring us to define appropriate notions of equivalence of strategies.
    Keywords: perfect recall, mixed strategy, behavior strategy, unawareness.
    JEL: C72 D83
    Date: 2017–11–02
  2. By: Giacomo Bonanno; Elias Tsakas (Department of Economics, University of California Davis)
    Abstract: We study common belief of rationality in strategic-form games with ordinal utilities, employing a model of qualitative beliefs. We characterize the three main solution concepts for such games, viz., Iterated Deletion of Strictly Dominated Strategies (IDSDS), Iterated Deletion of Boergers-dominated Strategies (IDBS) and Iterated Deletion of Inferior Strategy Profiles (IDIP), by means of gradually restrictive properties imposed on the models of qualitative beliefs. As a corollary, we prove that IDIP refines IDBS, which refines IDSDS.
    Keywords: Qualitative likelihood relation, ordinal payoffs, common belief of rationality, iterative deletion procedures
    JEL: C7
    Date: 2017–05–12
  3. By: Burkhard Schipper (Department of Economics, University of California Davis)
    Abstract: It is known that there are uncoupled learning heuristics leading to Nash equilibrium in all finite games. Why should players use such learning heuristics and where could they come from? We show that there is no uncoupled learning heuristic leading to Nash equilibrium in all finite games that a player has an incentive to adopt, that would be evolutionary stable or that could "learn itself". Rather, a player has an incentive to strategically teach such a learning opponent in order to secure at least the Stackelberg leader payoff. The impossibility result remains intact when restricted to the classes of generic games, two-player games, potential games, games with strategic complements or 2 x 2 games, in which learning is known to be "nice". More generally, it also applies to uncoupled learning heuristics leading to correlated equilibria, rationalizable outcomes, iterated admissible outcomes, or minimal curb sets. A possibility result restricted to "strategically trivial" games fails if some generic games outside this class are considered as well.
    Keywords: Learning in games, Interactive learning, Higher-order learning
    JEL: C72 C73
    Date: 2017–05–02
  4. By: Aviad Heifetz; Martin Meier; Burkhard Schipper (Department of Economics, University of California Davis)
    Abstract: We present a new solution concept for strategic games called comprehensive rationalizability that embodies "common cautious belief in rationality" based on a sound epistemic characterization in a universal type space. It refines rationalizability, but it neither refines nor is refined by iterated admissibility. Nevertheless, it coincides with iterated admissibility in many relevant economic applications.
    Keywords: Common assumption of rationality, common belief in rationality, iterated admissibility, rationalizability, lexicographic belief systems
    JEL: C72
    Date: 2017–05–02
  5. By: Axel Bernergard; Karl Wärneryd
    Abstract: We consider contestants who must choose exactly one contest, out of several, to participate in. We show that when the contest technology is of a certain type, or when the number of contestants is large, a self-allocation equilibrium, i.e., one where no contestant would wish to change his choice of contest, results in the allocation of players to contests that maximizes aggregate equilibrium effort. For a class of oligopoly models that are equivalent to contests, this implies output maximization.
    Keywords: contests, self-allocation, effort maximization, quantity competition
    JEL: C72 D43 D44 D72 D74 L13
    Date: 2017
  6. By: Kiryl Khalmetski; Dirk Sliwka
    Abstract: We study equilibrium reporting behavior in Fischbacher and Föllmi-Heusi (2013) type cheating games when agents have a fixed cost of lying and image concerns not to be perceived as a liar. We show that equilibria naturally arise in which agents with low costs of lying randomize among a set of the highest potential reports. Such equilibria induce a distribution of reports in line with observed experimental patterns. We also find that higher image concerns lead to an increase in the range of reported lies while the effect of the fixed cost of lying is the opposite.
    Keywords: cost of lying, image concerns, cheating game, truth-telling, deception
    JEL: D03 D82 D83 C72
    Date: 2017
  7. By: Burkhard Schipper; Hee Yeul Woo (Department of Economics, University of California Davis)
    Abstract: We study the informational effectiveness of electoral campaigns. Voters may not think about all political issues and have incomplete information with regard to political positions of candidates. Nevertheless, we show that if candidates are allowed to microtarget voters with messages then election outcomes are as if voters have full awareness of political issues and complete information about candidate's political positions. Political competition is paramount for overcoming the voter's limited awareness of political issues but unnecessary for overcoming just uncertainty about candidates' political positions. Our positive results break down if microtargeting is not allowed or voters lack political reasoning abilities. Yet, in such cases, negative campaigning comes to rescue.
    Keywords: Electoral competition, campaign advertising, multidimensional policy space, microtargeting, dog-whistle politics, negative campaigning, persuasion games, unawareness
    JEL: C72 D72 D82 P16
    Date: 2017–05–02
  8. By: Kanoria, Yash (Stanford University); Saban, Daniela (Stanford University)
    Abstract: Two-sided matching platforms, such as those for labor, accommodation, dating, and taxi hailing, can control and optimize over many aspects of the search for partners. To understand how the search for partners should be designed, we consider a dynamic two-sided search model with strategic agents who must spend a cost to discover their value for each potential partner. We find that in many settings, the platform can mitigate wasteful search effort by restricting what agents can see/do. Surprisingly, simple restrictions can improve social welfare even when screening costs are small, and agents on each side are ex-ante homogeneous. In asymmetric markets where agents on one side have a tendency to be more selective (due to smaller screening costs or greater market power), the platform should force the more selective side of the market to reach out first, by explicitly disallowing the less selective side from doing so. This allows the agents on the less selective side to exercise more choice in equilibrium. When agents are vertically differentiated, the platform can significantly improve welfare even in the limit of vanishing screening costs, by forcing one side of the market to propose and by hiding quality information. Furthermore, a Pareto improvement in welfare is possible in this limit.
    Date: 2017–07
  9. By: Charles F. Mason
    Abstract: I investigate the interaction between a country that imports a commodity whose production contributes to a stock pollution, such as electricity, from a country that produces that commodity. If the transboundary externality is priced improperly, the application of a feed-in tariff or border tax adjustment can provide an indirect policy instrument. But the imposition of such a tariff or tax creates an incentive for the producing country to deploy some sort of pollution controlling instrument. This, in turn, creates a strategic interaction between the two countries. Because the externality is inked to a stock pollutant, this strategic interaction will play out over time, which induces a dynamic game. In this modeling context, I describe the nature of the strategic interaction, and characterize the Markov-perfect equilibrium.
    Keywords: transboundary pollution, differential game, tariff, tax
    JEL: C73 Q54 Q58
    Date: 2017
  10. By: Wolfgang Buchholz; Richard Cornes; Dirk Rübbelke
    Abstract: In many empirically relevant situations agents in different groups are affected by the provision of a public characteristic in divergent ways: While for one group it represents a public good, it is a public bad for another group. Applying Cornes’ and Hartley’s (2007) Aggregative Game Approach, we analyze a general model, in which such contentious public characteristics are present and are provided cooperatively. In particular, we establish neutrality results w.r.t. redistribution and growth of income, infer the effects of preference changes and coalition building and present a technology paradox. Finally, we compare the outcome of voluntary provision of the contentious public characteristic with the Pareto optimal solution highlighting a potential conflict between equity and efficiency in this case.
    Keywords: public goods, public bads, voluntary provision, neutrality
    JEL: C72 H41
    Date: 2017
  11. By: Daeyoung Jeong (Economic Research Institute, Bank of Korea)
    Abstract: We develop a model of strategic information transmission from an outside expert with informational superiority to a group of people who make a decision by voting on a proposal. An outside expert who observes the qualities of a proposal sends a cheap talk message to decision makers with limited information. A simple cheap talk strategy of the expert can be surprisingly effective in persuading decision makers by polarizing or unifying their opinions. When there is a significant informational gap, decision makers vote in the expert's interest by focusing only on the expert's message, even though they know she has her own bias.
    Keywords: Cheap Talk, Voting, Polarization
    JEL: D71 D72 D78 D82 D83
    Date: 2017–06–28
  12. By: Alex Coram (University of Massachusetts Amherst)
    Abstract: Societies are often compared in terms of the relative shares of the domestic product controlled by government but we don’t have much by way of analytical tools to allow us to think about the ways in which changes in these shares affect the characteristics of production and distribution. This paper treats production and distribution as a cooperative game with a continuum of players. Outcomes depend on politics and economics. It has a number of unexpected results. Among these are that relative shares do not depend on the majority rule the production function and that the characteristics of inegalitarian and egalitarian systems may converge.
    Date: 2017
  13. By: Abbassi, Puriya; Bräuning, Falk; Schulze, Niels
    Abstract: We study the role of bargaining power and outside options for the pricing of over-the-counter interbank loans using a bilateral Nash bargaining model and test the model predictions with detailed transaction-level data from the euro-area interbank market. We find that lender banks with greater bargaining power over their borrowers charge higher interest rates, while the lack of alternative investment opportunities for lenders reduces bilateral interest rates. Moreover, we find that lenders that are not eligible to earn interest on excess reserves (IOER) lend funds below the IOER rate to borrowers with access to the IOER facility, which in turn put these funds in their reserve accounts to earn the spread. Our findings highlight that this persistent arbitrage opportunity is not a result of the mere lack of alternative outside options of some lenders, but it crucially depends on their limited bilateral bargaining power, leading to a persistent segmentation of prices in the euro interbank market. We examine the implications of these findings for the transmission of euro-area monetary policy.
    Keywords: bargaining power,over-the-counter market,monetary policy,money market segmentation
    JEL: E4 E58 G21
    Date: 2017

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