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on Game Theory |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Stephen Morris (Dept. of Economics, Princeton University) |
| Abstract: | Given a game with uncertain payoffs, information design analyzes the extent to which the provision of information alone can influence the behavior of the players. 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. We provide an introduction into the basic issues and insights of a rapidly growing literature in information design. We show how the literal and metaphorical interpretations of information design unify a large body of existing work, including that on communication in games (Myerson (1991)), Bayesian persuasion (Kamenica and Gentzkow (2011)) and some of our own recent work on robust predictions in games of incomplete information. |
| Keywords: | Information design, Bayesian persuasion, correlated equilibrium, incomplete information, robust predictions, information structure |
| JEL: | C72 D82 D83 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2075r2&r=gth |
| By: | Leister, Matthew; Zenou, Yves; Zhou, Junjie |
| Abstract: | We study a coordination game among agents on a network, choosing whether or not to take an action that yields value increasing in the actions of neighbors. In a standard global game setting, players receive noisy information of the technology's common state-dependent value. We show the existence and uniqueness of a pure equilibrium in the noiseless limit. This equilibrium partitions players into coordination sets, within members take a common cutoff strategy and are path connected. We derive an algorithm for calculating limiting cutoffs, and provide necessary and sufficient conditions for agents to inhabit the same coordination set. The strategic effects of perturbations to players' underlining values are shown to spread throughout but be contained within the perturbed players' coordination sets. |
| Keywords: | coordination; global games; network partition; welfare. |
| JEL: | C72 D85 Z13 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12392&r=gth |
| By: | Robert A. Pollak |
| Abstract: | This paper investigates marriage market equilibrium under the assumption that Bargaining In Marriage (BIM) determines allocation within marriage. Prospective spouses, when they meet in the marriage market, are assumed to foresee the outcome of BIM and rank prospective spouses on the basis of the utilities they foresee emerging from BIM. Under these assumptions, the marriage market is the first stage of a multi-stage game – in the simplest case, a two-stage game – that must be solved by backwards induction. The marriage market determines both who marries and, among those who marry, who marries whom. Bargaining in the second and any subsequent stages determines allocation within each marriage. When BIM determines allocation within marriage, the appropriate framework for analyzing marriage market equilibrium is the Gale-Shapley matching model. In contrast, the standard model of marriage market equilibrium assumes that prospective spouses make Binding Agreements in the Marriage Market (BAMM) that determine allocation within marriage. If we assume BAMM and transferable utility, then the appropriate framework for analyzing marriage market equilibrium is the Koopmans-Beckmann-Shapley-Shubik assignment model. BIM and BAMM have different implications not only for allocation within marriage but also for who marries, who marries whom, the number of marriages, and the Pareto efficiency of marriage market equilibrium. |
| JEL: | D1 J12 K36 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24000&r=gth |
| By: | Hubert Stahn (Aix-Marseille Univ. (Aix-Marseille School of Economics), CNRS, EHESS and Centrale Marseille) |
| Abstract: | This paper explores the main differences between the Shapley Values of a set of taxa introduced by Haake et al. [4] and Fuchs and Jin [3], the latter having been found identical to the Fair Proportion Index (Redding and Mooers [10]). In line with Shapley [13], we identify the cooperative game basis for each of these two classes of phylogenetic games and use them (i) to construct simple formulas for these two Shapley values and (ii) to compare these different approaches. Using the set of weights of a phylogenetic tree as a parameter space, we then discuss the conditions under which these two values coincide and, if they are not the same, revisit Hartman's [5] convergence result. Finally, we compare the species ranking induced by these two values. Considering the Kendal and the Spearman rank correlation coefficient, simulations show that these rankings are strongly correlated. |
| Keywords: | biodiversity, phylogenetic trees, Shapley value, Fair Proportion index |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1741&r=gth |
| By: | Forgó, Ferenc |
| Abstract: | Exact enforcement values (Ashlagi I, Monderer D and Tennenholz M (2008) Journal of Artificial Intelligence 33:575-613) of soft correlated equilibrium (Forgó F (2010) Mathematical Social Sciences 60:186-190) for non-decreasing and mixed two-facility simple linear congestion games (including n-person chicken and prisoners' dilemma games) are determined and found to be 1 and 2, respectively. For non-inreasing two-facility simple linear congestion games lower and upper bounds are given for the enforcement value. The upper bound 1,265625 is significantly better than the previously known 1,333 |
| Keywords: | soft correlated equilibrium, congestion games, chicken game, prisoners' dilemma, enforcement value |
| JEL: | C72 |
| Date: | 2017–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:cvh:coecwp:2017/07&r=gth |
| By: | Hitoshi Matsushima (Department of Economics, University of Tokyo) |
| Abstract: | An economic agent (player) sometimes fails to correct hypothetical (contingent) thinking, which may increase the occurrence of anomalies in various economic situations. This paper demonstrates a method to encourage such a boundedly rational player to practice correct hypothetical thinking in strategic situations with imperfect information. We introduce a concept termed “frame†as a description of a synchronized cognitive procedure, through which a player decides multiple actions in a step-by-step manner, shaping his (or her) strategy selection as a whole. We could regard a frame as a supposedly irrelevant factor from the viewpoint of full rationality. However, this paper theoretically shows that in a multi-unit auction with private values, the ascending proxy auction has a significant advantage over the second-price auction in terms of the boundedly rational players' incentive to practice correct hypothetical thinking, because of the difference, not in physical rule, but in background frame, between these auction formats. By designing frames appropriately, we generally show that any static game that is solvable in iteratively undominated strategies is also solvable even if players cannot practice correct hypothetical thinking without the help of a well-designed frame. |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf425&r=gth |
| By: | Stefan Rass |
| Abstract: | The game-theoretic risk management framework put forth in the precursor reports "Towards a Theory of Games with Payoffs that are Probability-Distributions" (arXiv:1506.07368 [q-fin.EC]) and "Algorithms to Compute Nash-Equilibria in Games with Distributions as Payoffs" (arXiv:1511.08591v1 [q-fin.EC]) is herein concluded by discussing how to integrate the previously developed theory into risk management processes. To this end, we discuss how loss models (primarily but not exclusively non-parametric) can be constructed from data. Furthermore, hints are given on how a meaningful game theoretic model can be set up, and how it can be used in various stages of the ISO 27000 risk management process. Examples related to advanced persistent threats and social engineering are given. We conclude by a discussion on the meaning and practical use of (mixed) Nash equilibria equilibria for risk management. |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1711.00708&r=gth |
| By: | A. Aiche (Department of Economics, University of Haifa.); Ezra Einy (BGU); Aner Sela (BGU); Ori Haimanko (BGU); Diego Moreno (Departamento de Economia, Universidad Carlos III de Madrid); B. Shitovitz (BGU) |
| JEL: | C72 D44 D82 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bgu:wpaper:1710&r=gth |
| By: | Sebastien Mitraille (Toulouse Business School); Henry Thille (Department of Economics and Finance, University of Guelph, Guelph ON Canada) |
| Abstract: | We study a game in which producers can sell in two periods: one before a random demand is fully revealed and one after. This type of game corresponds to models of strategic forward trading or of advance sales to intermediaries or consumers. Demand variations and committed advance sales results in the possibility that the net residual demand in the final stage may be so low that it is not profitable for producers make additional sales, or indeed, may even drive the final period price to zero, introducing some convexity into producers’ payoffs. If this possibility of ex post overcommitment occurs on the equilibrium path, it reduces the level of advance sales chosen by producers, muting the pro-competitive effects found under deterministic demand. We establish a condition that determines whether or not demand uncertainty is “minor”, in the sense that the equilibrium depends only on the expected value of the demand shock. In addition, we demonstrate that when the support of demand shocks is narrow enough compared to the marginal cost of production, there exists a unique symmetric subgame-perfect equilibrium in pure strategies. When the support of demand shocks is wider, we establish a regularity condition on the distribution of demand shocks and the model parameters that ensures the existence of a unique equilibrium in pure strategies. We illustrate through examples that commonly used uni-modal distributions satisfy this condition, while bi-model distributions may not. |
| Keywords: | Oligopoly, advance sales, uncertainty, overcommitment |
| JEL: | C72 D43 L13 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2017-08&r=gth |
| By: | Esteban, Joan; Flamand, Sabine; Morelli, Massimo; Rohner, Dominic |
| Abstract: | This paper describes the repeated interaction between groups in a country as a repeated Stackelberg bargaining game, where conflict and secessions can happen on the equilibrium path due to commitment problems. If a group out of power is sufficiently small and their contribution to total surplus is not too large, then the group in power can always maintain peace with an agreeable surplus sharing offer every period. When there is a mismatch between relative size and relative surplus contribution of the minority group, conflict can occur. While in the static model secession can occur only as peaceful outcome, in the infinite horizon game with high discount factor conflict followed by secession can occur. We discuss our full characterization of equilibrium outcomes in light of the available empirical evidence. |
| Keywords: | conflict; Dynamic Game; Secession; Separatism |
| JEL: | C73 D74 H77 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12398&r=gth |
| By: | Elias Tsakas; Nikolas Tsakas; Dimitrios Xefteris |
| Abstract: | Agents that are subject to persuasion attempts often employ strategies that allow them to effectively resist. In the context of Bayesian Persuasion (Kamenica and Gentzkow, 2011), we argue that if appropriate action-contingent payoff adjustments are available to the subject of persuasion, then payoff improvements are achieved. Remarkably, payoff-improving resistance strategies need not involve adding benefits to any action. We characterize the optimal resistance strategy when only costly payoff adjustments are allowed and we show that it induces a perfectly informative signal and a substantial increase in the agent’s welfare. |
| Keywords: | Bayesian persuasion; Resistance; Uncertainty; Public commitment |
| JEL: | D72 D82 D83 K40 M38 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:07-2017&r=gth |
| By: | Laica, Christoph; Lauber, Arne; Sahm, Marco |
| Abstract: | We examine the fairness and intensity of sequential round-robin tournaments with multiple prizes. With three symmetric players and two prizes, the tournament is completely fair if and only if the second prize is valued half of the first prize, regardless of whether matches are organized as Tullock contests or as allpay auctions. For second prizes different from half of the first prize, three-player tournaments with matches organized as Tullock contests are usually fairer than tournaments with matches organized as all-pay auctions. However, unless the second prize is very small, they are less intense in the sense that players exert less ex-ante expected aggregate effort per unit of prize money. Moreover, we specify how the relative size of the second prize influences the extent and the direction of discrimination as well as the intensity of three-player tournaments. Finally, we show that there is no prize structure for which sequential round-robin tournaments with four symmetric players are completely fair in general. |
| Keywords: | Round-Robin Tournament,Multiple Prizes,Fairness,Intensity,Tullock Contest,All-Pay Auction |
| JEL: | C72 D72 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bamber:129&r=gth |
| By: | Laurens Cherchye; Sam Cosaert; Thomas Demuynck; Bram De Rock |
| Abstract: | We propose a novel approach to model joint consumption decisions of individuals who care for each other. We assume noncooperative interaction between the different individuals and the within-group consumption outcome critically depends on the degree of caring between the group members. By varying the degree of caring, the model encompasses a whole continuum of group consumption models that are situated between the fully cooperative model (assuming a Pareto optimal outcome) and the noncooperative model without caring (assuming a public good game with voluntary contributions). This feature is used to define a measure for the degree of cooperation within the group, which quantifies how close the observed group behavior is to the fully cooperative benchmark. We also establish a dual characterization of our noncooperative model with caring preferences: we show that the model is dually equivalent to a noncooperative model with non-caring preferences that is characterized by intra-group transfers. Following a revealed preference approach, we derive testable implications of the model for empirical data. Finally, we also use our model to analyze decisions made by dyads of children in an experimental setting. We find considerable heterogeneity in the degree of caring (or cooperation) across dyads, which correlates with assertiveness and the degree of interaction within dyads. |
| JEL: | D11 D12 D13 C14 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/261074&r=gth |
| By: | Serhiy Kandul; Olexandr Nikolaychuk |
| Abstract: | Delineation of someone's ownership typically involves the sense of deservedness: the property right is respected as long as the owner deserve to own the object. Objectively, deservedness is often linked to one's actions or specific attributes that justify the owner's claims. We argue that people might get the sense of deservedness without an objective causal attribution. In our experiment, the pure luck defines the allocation of the roles. Still, compared to a standard setting, in a treatment where actions have no causal effect on the outcome, dictators keep larger share. At the same time, dictators do not compensate recipients for their irrelevant actions. We interpret this asymmetry in reaction towards the procedures of role allocation as 'illusory property': people care about irrelevant procedures only if they favor themselves but not others. |
| Keywords: | dictator game; entitlement; fairness; social preferences; procedural preferences. |
| JEL: | D01 D64 D90 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:irn:wpaper:17-12&r=gth |
| By: | Sergio Salas; Javier Núñez |
| Abstract: | What are the consequences of asymmetry of information about the future state of the economy between a benevolent Central Bank (CB) and private agents near the zero lower bound? How is the conduct of monetary policy modified under such a scenario? We propose a game theoretical signaling model, where the CB has better information than private agents about a future shock hitting the economy. The policy rate itself is the signal that conveys information to private agents in addition to its traditional role in the monetary transmission mechanism. We find that only multiple "pooling equilibria" arise in this environment, where a CB privately forecasting a contraction will most likely follow a less expansionary policy compared to a complete information context, in order to avoid making matters worse by revealing bad times ahead. On the other hand, a CB privately forecasting no contraction is most likely to distort its complete information policy rate, the consequences of which are welfare detrimental. However, this is necessary because deviating from the pooling policy rate would be perceived by private agents as an attempt to mislead them into believing that a contraction is not expected, which would be even more harmful for society. |
| Keywords: | Monetary Policy, Signaling, Zero lower bound |
| JEL: | E58 C72 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:ucv:wpaper:2017-02&r=gth |
| By: | Daher, Wassim; Aydilek, Harun; Saleeby, Elias G. |
| Abstract: | This paper investigates the effect of different risk attitudes on the financial decisions of two insiders trading in the stock market. We consider a static version of the Kyle (1985) model with two insiders. Insider 1 is risk neutral while insider 2 is risk averse with negative exponential utility. First, we prove the existence of a unique linear equilibrium. Second, we obtain somewhat surprising results on how the risk attitudes affect the market liquidity, the price efficiency, when we carry out a comparative static analysis with respect to Tighe (1989) and Holden and Subrahmanyam(1994) models. |
| Keywords: | Insider trading, Risk neutrality, Risk aversion, Exponential Utility, Market structure, Kyle model |
| JEL: | D8 D82 G1 G14 |
| Date: | 2017–09–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81733&r=gth |
| By: | Antonin Macé (Aix-Marseille Univ. (Aix-Marseille School of Economics), CNRS, EHESS and Centrale Marseille); Rafael Treibich (University of Southern Denmark) |
| Abstract: | We study the design of voting rules for international unions when countries’ participation is voluntary. While efficiency recommends weighting countries proportionally to their stakes, we show that accounting for participation constraints entails overweighting some countries, those for which the incentive to participate is the lowest. When decisions are not enforceable, cooperation requires the satisfaction of more stringent constraints, that may be mitigated by granting a veto power to some countries. The model has important implications for the problem of apportionment, the allocation of voting weights to countries of differing populations, where it provides a rationale for setting a minimum representation for small countries. |
| Keywords: | international unions, constitutional design, veto, participation constraints |
| JEL: | F53 D02 C61 C73 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1742&r=gth |
| By: | Antonin Macé (Aix-Marseille Univ. (Aix-Marseille School of Economics), CNRS, EHESS and Centrale Marseille) |
| Abstract: | I study the measurement of the influence of scientists based on bibliographic data. I propose a new measure that accounts for indirect influence and allows to compare scientists across different fields of science. By contrast, common measures of influence that “count citations”, such as the h-index, are unable to satisfy either of these two properties. I use the axiomatic method in two opposite ways: to highlight the two limitations of citation- counting schemes and their independence, and to carefully justify the assumptions made in the construction of the proposed measure. |
| Keywords: | intellectual influence, networks, comparability across fields, axiomatic method |
| JEL: | C43 D85 A11 A12 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1743&r=gth |
| By: | Nikolas Tsakas; Dimitrios Xefteris |
| Abstract: | Electoral competition between two vote-share maximizing candidates in the context of the unidimensional spatial model leads to platform convergence: both candidates end up proposing the ideal policy of the median voter (Downs, 1957). Palfrey (1984) famously argued that if third candidate entry is expected after the two main candidates choose their platforms, the unique equilibrium is such that the two main candidates locate substantially far from each other. By conducting a laboratory experiment, we put this popular idea to test, for the first time. We allow entry to take place with a probability p [0; 1] and we find that, indeed, the degree of polarization of the two main candidates’ platforms increases as third candidate entry becomes more likely to occur, providing strong evidence in support of Palfrey’s (1984) formal results and underlying intuition. |
| Keywords: | electoral competition; entry; third party; spatial model; experiment |
| JEL: | D72 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:09-2017&r=gth |
| By: | Francesco Decarolis; Maris Goldmanis; Antonio Penta |
| Abstract: | The transition of the advertising market from traditional media to the internet has induced a proliferation of marketing agencies specialized in bidding in the auctions that are used to sell ad space on the web. We analyze how collusive bidding can emerge from bid delegation to a common marketing agency and how this can undermine the revenues and allocative efficiency of both the Generalized Second Price auction (GSP, used by Google and Microsoft-Bing and Yahoo!) and the of VCG mechanism (used by Facebook). We find that, despite its well-known susceptibility to collusion, the VCG mechanism outperforms the GSP auction both in terms of revenues and efficiency. |
| JEL: | C72 D44 L81 M37 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23962&r=gth |
| By: | Heyen, Daniel |
| Abstract: | Technological innovation is a key strategy for tackling climate change and other environmental problems. The required R&D expenditures however are substantial and fall on self-interested countries. Thus, the prospects of successful innovation critically depend on innovation incentives. This paper focuses on a specific mechanism for strategic distortions in this R&D game. In this mechanism, the outlook of future conflicts surrounding technology deployment directly impacts on the willingness to undertake R&D. Apart from free-riding, a different deployment conflict with distortive effects on innovation can occur. Low deployment costs and heterogeneous preferences might give rise to 'free-driving' (Weitzman 2015): The country with the highest preference for technology deployment, the free driver, may dominate the deployment outcome to the detriment of others. The present paper develops a simple two stage model for analysing how technology deployment conflicts, free-riding and free-driving, shape R&D incentives of two asymmetric countries. The framework gives rise to rich findings, underpinning the narrative that future deployment conflicts extend to the R&D stage. While the outlook of free-riding unambiguously weakens innovation incentives, the findings for free-driving are more complex, including the possibility of excessive R&D as well as incentives for counter-R&D. |
| Keywords: | Environmental innovation; R&D game; innovation incentives; externalities; strategic conflicts; climate engineering; geoengineering; free driver externality |
| JEL: | D62 H41 O31 Q54 Q55 |
| Date: | 2016–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:68104&r=gth |
| By: | Haraguchi, Junichi; Yasui, Yuta |
| Abstract: | We examine the supply function equilibrium (SFE), which is often used in the analysis of multi-unit auctions such as wholesale electricity markets, among (partially) public firms. In a general model, we characterize the SFE of such firms and examine the properties of symmetric SFE. We show, analyzing an asymmetric SFE in a duopoly model with linear demand and quadratic cost functions, that, when a partially public firm weighs more on the social welfare, the supply functions of not only the partially public firm but also a profit maximizing firm are flatter at the equilibrium. We also confirm that in a linear-quadratic model, the SFE converges to the (inverse) marginal cost function when the firms' social concerns increase symmetrically in the industry. |
| Keywords: | supply function equilibrium, electricity markets, partial privatization, corporate social responsibility, mixed oligopoly |
| JEL: | H42 L13 L33 |
| Date: | 2017–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82394&r=gth |
| By: | Bayer, Ralph; Cowell, Frank A. |
| Abstract: | Firms are usually better informed than tax authorities about market conditions and the potential profits of competitors. They may try to exploit this situation by under-reporting their own taxable profits. The tax authority could offset firms’ informational advantage by adopting “smarter” audit policies that take into account the relationship between a firm׳s reported profits and reports for the industry as a whole. Such an audit policy will create an externality for the decision makers in the industry and this externality can be expected to affect not only firms׳ reporting policies but also their market decisions. If public policy takes into account wider economic issues than just revenue raising what is the appropriate way for a tax authority to run such an audit policy? We develop some clear policy rules in a standard model of an industry and show the effect of these rules using simulations. |
| Keywords: | Tax compliance; evasion; oligopoly |
| JEL: | J1 |
| Date: | 2016–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:65996&r=gth |
| By: | Giammario Impullitti; Omar Licandro; Pontus Rendahl |
| Abstract: | We study the gains from trade in an economy with oligopolistic competition, firm heterogeneity, and innovation. Oligopolistic competition together with free entry make markups responsive to firm productivity and trade costs. Lowering trade costs reduces markups on domestic sales but increases markups on export sales, as firms do not pass the entire reduction in trade costs onto foreign consumers. Nevertheless, the downward pressure dominates and the average markup declines, deterring firms from entering the market and leading to higher market concentration. Neither the increased concentration nor the incomplete pass-through of trade costs to export markups are strong enough to compensate for the increase in competition on domestic sales. Thus the overall effect of trade on markups is pro-competitive and a key source of the associated welfare gains. In addition to markups, selection and innovation provide additional channels through which the trade-induced effect on competition impacts welfare. In a quantitative exercise, we decompose the total gains from trade into these three contributing channels; we find that innovation plays a small but non-negligible role, while the main component is equally split between the pro-competitive and the selection channel. |
| Keywords: | gains from trade, heterogeneous firms, oligopoly, innovation, endogenous markups, endogenous market structure |
| JEL: | F12 F13 O31 O41 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6727&r=gth |