nep-gth New Economics Papers
on Game Theory
Issue of 2018‒02‒26
nineteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Efficient Partnership Formation In Networks By Bloch, Francis; Dutta, Bhaskar; Manea, Mihai
  2. Characterizing NTU-bankruptcy rules using bargaining axioms By Dietzenbacher, Bas; Peters, Hans
  3. Strategic Default in Financial Networks By Nizar Allouch; Maya Jalloul
  4. Multi-Battle n-Player Dynamic Contests By Anbarci, Nejat; Cingiz, Kutay; Ismail, Mehmet
  5. Evolutionary Selection against Iteratively Weakly Dominated Strategies By Bernergård, Axel; Mohlin, Erik
  6. Endogenous institution formation in public good games: The effect of economic education By Altemeyer-Bartscher, Martin; Bershadskyy, Dmitri; Schreck, Philipp; Timme, Florian
  7. Framing Game Theory By Hitoshi Matsushima
  8. Bertrand Competition with Asymmetric Costs: A Solution in Pure Strategies By Demuynck, Thomas; Herings, P. Jean-Jacques; Saulle, Riccardo D.; Seel, Christian
  9. Dual Auctions for Assigning Winners and Compensating Losers By John Wooders; Matt Van Essen
  10. On the Limits of Incentive Design: Examining Medical Students' Misunderstanding of "the Match" By Alex Rees-Jones; Samuel Skowronek
  11. The Dark Side of Personality: Anti-Sociality Increases Strategic Game Play By Jan (J.B.) Engelmann; Basil Schmid; Justin Chumbley; Ernst Fehr
  12. Monitoring and punishment networks in a common-pool resource dilemma: experimental evidence By Ganga Shreedhar, Alessandro Tavoni, Carmen Marchiori
  13. Self-implementation of social choice correspondences in strong Equilibrium By Peleg, Bezalel; Peters, Hans
  14. On the merger paradox and asymmetric product differentiation By Tsuyoshi Toshimitsu; Tetsuya Nakajima
  15. Exclusion and Reintegration in a Social Dilemma By Solda, Alice; Villeval, Marie Claire
  16. Uninvadable social behaviors and preferences in group-structured populations By Alger, Ingela; Lehmann, Laurent; Weibull, Jörgen W.
  17. Game-Theoretic Capital Asset Pricing in Continuous Time By Vladimir Vovk; Glenn Shafer
  18. Quantitative Analysis of Multi-Party Tariff Negotiations By Kyle Bagwell; Robert W. Staiger; Ali Yurukoglu
  19. Legal Advertising and Frivolous Lawsuits. By Yannick Gabuthy; Eve-Angéline Lambert

  1. By: Bloch, Francis (Université Paris 1 and Paris School of Economics); Dutta, Bhaskar (University of Warwick and Ashoka University); Manea, Mihai (Stanford University)
    Abstract: We analyze the formation of partnerships in social networks. Players need favors at random times and ask their neighbors in the network to form exclusive long-term partnerships that guarantee reciprocal favor exchange. Refusing to provide a favor results in the automatic removal of the underlying link. When favors are costly, players agree to provide the first favor in a partnership only if they otherwise face the risk of eventual solitude. In equilibrium, the players essential for realizing every maximum matching can avoid this risk and enjoy higher payoffs than inessential players. Although the search for partners is decentralized and reflects local incentives, the strength of essential players drives efficient partnership formation in every network. When favors are costless, players enter partnerships at any opportunity and every maximal matching can emerge in equilibrium. In this case, efficiency is limited to special linking patterns : complete and complete bipartite networks, locally balanced bipartite networks with positive surplus, and factor-critical networks.
    Keywords: networks, ; partnerships, matchings ; efficiency ; decentralized markets ; favor exchange ; completely elementary networks ; locally balanced networks
    JEL: D85 C78
    Date: 2018
  2. By: Dietzenbacher, Bas (tilburg university; universiteit tilburg; university tilburg); Peters, Hans (QE / Mathematical economics and game the)
    Abstract: This paper takes an axiomatic bargaining approach to bankruptcy problems with nontransferable utility by characterizing bankruptcy rules in terms of properties from bargaining theory. In particular, we derive new axiomatic characterizations of the proportional rule, the truncated proportional rule, and the constrained relative equal awards rule using properties which concern changes in the estate or the claims.
    Keywords: NTU-bankruptcy problem, axiomatic analysis, bargaining theory
    JEL: C78 D74
    Date: 2018–02–08
  3. By: Nizar Allouch (University of Kent); Maya Jalloul (Queen Mary University of London)
    Abstract: This paper investigates a model of strategic interactions in financial networks, where the decision by one agent on whether or not to default impacts the incentives of other agents to escape default. Agents' payoffs are determined by the clearing mechanism introduced in the seminal contribution of Eisenberg and Noe (2001). We first show the existence of a Nash equilibrium of this default game. Next, we develop an algorithm to find all Nash equilibria that relies on the financial network structure. Finally, we explore some policy implications to achieve efficient coordination.
    Keywords: Systemic risk, default, financial networks, coordination games, central clearing, counterparty, financial regulation
    JEL: C72 D53 D85 G21 G28 G33
    Date: 2018–02–06
  4. By: Anbarci, Nejat; Cingiz, Kutay (General Economics 0 (Onderwijs)); Ismail, Mehmet (department of political economy, king's college london)
    Abstract: In presidential primaries, proportional campaign resource allocation to states with respect to their delegate numbers is a desirable concept. To study proportionality, we introduce a novel model for n-player multi-battle dynamic contests. We show that when players maximize their expected number of delegates there is a subgame perfect equilibrium in which players allocate their resources proportionally. However for at least 4 number of states and at least 2 delegates, when players maximize their probability of winning, there is always a distribution of delegates over the states such that population proportionality is not satisfied.
    Keywords: Presidential elections, dynamic contests, presedential primaries, population proportionality, multi-battle contests
    JEL: C73 D72
    Date: 2018–02–08
  5. By: Bernergård, Axel (Department of Economics, Södertörn University); Mohlin, Erik (Department of Economics, Lund University)
    Abstract: This paper provides sufficient conditions under which convex monotonic evolutionary dynamics (a class of imitative dynamics that includes the replicator dynamic) select against strategies that do not survive iterated elimination of weakly dominated strategies. We apply these conditions to Bertrand duopolies, first-price auctions, finitely repeated Prisoner's Dilemmas, and the p-Beauty Contests. Our conditions also imply evolutionary selection against all iteratively strictly dominated strategies.
    Keywords: Iterated elimination of weakly dominated strategies; Iterated admissibility; Payoff monotonicity; Convex monotonicity; Evolutionary dynamics; Replicator dynamic
    JEL: C72 C73
    Date: 2017–12–09
  6. By: Altemeyer-Bartscher, Martin; Bershadskyy, Dmitri; Schreck, Philipp; Timme, Florian
    Abstract: In a public good experiment, the paper analyses to which extent individuals with economic education behave differently in a second-order dilemma. Second-order dilemmas may arise, when individuals endogenously build up costly institutions that help to overcome a public good problem (first-order dilemma). The specific institution used in the experiment is a communication platform allowing for group communication before the first-order public good game takes place. The experimental results confirm the finding of the literature that economists tend to free ride more intensively in public good games than non-economists. The difference is the strongest in the end-game phase, yielding in the conclusion that the magnitude of the end-game effect depends on the share of economists in the pool of participants. When it comes to the building-up of institutions, the individual efficiency gain of the institution and its inherent cost function constitute the driving forces for the contribution behaviour. Providing an investment friendly environment yields in economists contributing more to the institution than non-economists. Therefore, we make clear that first-order results of a simple public good game cannot be simply applied for second-order incentive problems.
    Keywords: voluntary contribution mechanism,endogenous formation of institutions,second-order incentive problem,economic education
    JEL: C91 C92 H41
    Date: 2017
  7. By: Hitoshi Matsushima (Department of Economics, University of Tokyo)
    Abstract: A real player sometimes fails to practice hypothetical thinking, which increases the occurrence of anomalies in various situations. This study incorporates psychology into game theory and demonstrates a cognitive method to encourage bounded-rational players to practice correct hypothetical thinking in strategic interactions with imperfect information. We introduce a concept termed “frame†as a description of a synchronized cognitive procedure through which each player decides multiple actions in a step-by-step manner, shaping his (or her) strategy selection. We could regard a frame as the supposedly irrelevant factors from the viewpoint of full rationality. However, this paper theoretically shows that in a multi-unit trading with private values, the ascending proxy auction has a significant advantage over the second-price auction in terms of the bounded-rational players' incentive to practice hypothetical thinking, because of the difference, not in physical rule, but in background frame. By designing a frame appropriately, we generally show that any static game that is solvable in iteratively undominated strategies is also solvable, even if players cannot practice hypothetical thinking without the help of a well-designed frame. We further investigate the possibility that even a detail-free frame design serves to overcome the difficulty of hypothetical thinking. We extend this investigation to the Bayesian environments.
  8. By: Demuynck, Thomas (universite libre de bruxelles); Herings, P. Jean-Jacques (General Economics 1 (Micro)); Saulle, Riccardo D. (General Economics 1 (Micro)); Seel, Christian (General Economics 1 (Micro))
    Abstract: We consider two versions of a Bertrand duopoly with asymmetric costs and homogeneous goods. They differ in whether predatory pricing is allowed. For each version, we derive the Myopic Stable Set in pure strategies as introduced by Demuynck, Herings, Saulle, and Seel (2017). We contrast our prediction to the prediction of Nash Equilibrium in mixed strategies.
    Keywords: Bertrand Competition, Asymmetric Costs, Myopic Stable Set
    JEL: C70 C72 D43
    Date: 2018–02–08
  9. By: John Wooders; Matt Van Essen (Department of Economics, Finance, and Legal Studies, University of Alabama)
    Abstract: We study the problem of allocating goods (or rights) and chores when participants have equal claim on a unit of the good or equal obligation to undertake a chore. We propose two dynamic auctions for solving problems of this type: a "goods" auction and a "chore" auction, which are duals of one another. Either auction can be used for allocating goods or chores by suitably deÖning a good or a chore. The auctions are efficient and payoff equivalent. We provide necessary and sufficient conditions for equilibrium for general utility functions for both auctions, and provide closed-form solutions when bidders are risk neutral and when they are CARA risk averse. The auctions have the same limit equilibrium bid function as bidders become infinitely risk averse. We show that the limit bid function is also the unique maxmin perfect strategy for both auctions.
    Date: 2018–01
  10. By: Alex Rees-Jones; Samuel Skowronek
    Abstract: How prevalent is preference misrepresentation in matching procedures that incentivize truth-telling, and who pursues it? To address these questions, we administered an online experiment to 1,714 medical students immediately after their participation in the medical residency match. When placed in an analogous matching task, we find that 23% of match participants act on an incorrect belief that the algorithm can be gamed. Better students are less likely to make these mistakes, due to both higher cognitive ability and a reduced propensity to game when in a strategically advantageous position. We explore additional determinants of gaming attempts, including overconfidence, expectations, advice, and trust. We discuss the implications of this behavior for the design of allocation mechanisms and the social welfare in markets that use them.
    Date: 2018–02
  11. By: Jan (J.B.) Engelmann (University of Amsterdam; Tinbergen Institute, The Netherlands); Basil Schmid (ETH Zurich); Justin Chumbley (ETH Zurich); Ernst Fehr (University of Zurich)
    Abstract: We assess the role of anti-social personality traits in explaining heterogeneity in commonly observed social preferences. We identified a personality profile that clearly reflects anti-social personality characteristics, with high positive loadings on Machiavellianism and high negative loadings on empathy, trustworthiness and agreeableness. Anti-sociality predicts decision strategies in a manner that is consistent with its name: significantly lower levels of trust and decreased trustworthiness. To identify the strategic nature of anti-social behavior in changing environments, we assessed the moderating role of personality on investor trust and trustee reciprocity in the presence relative to the absence of the investor’s option to punish. Our results show that only the anti-social personality profile is associated with specific payoff maximizing strategy shifts induced by these environmental changes: when punishment was not available to investors, we observe significantly lower levels of investor trust and trustee reciprocity, while there is a significant increase in both behaviors when punishment was available. These effects were specific for anti-sociality, as no other personality factor was associated with such a strong adjustment of decision strategies in the presence of punishment. These results demonstrate that anti-social personality characteristics are associated with strategic behavioral shifts aimed at maximizing the extraction of resources from their counterparts. The reliability of the strategic effects of anti-social personality during trust, reciprocity and punishment strongly supports the notion that self-projection underlies anti-social decision-making.
    Keywords: trust; reciprocity; punishment; anti-social; personality; individual differences
    JEL: C71 D87 D91
    Date: 2018–01–26
  12. By: Ganga Shreedhar, Alessandro Tavoni, Carmen Marchiori
    Abstract: In an experimental study, we explore how imperfect monitoring and punishment network architectures impacts cooperation, punishment and beliefs, in a non-linear common pool resource appropriation dilemma. We find that complete networks (with perfect monitoring and punishment), are the least efficient due to higher punishment, relative to incomplete networks. In addition, high appropriators are sanctioned in all networks, but well-connected and undirected networks elicit higher anti-social punishment. Lastly, although subject’s underestimate other’s appropriation in all networks, the difference between beliefs and other’s appropriation declines with time. This decline occurs faster in complete networks, relative to incomplete but connected networks.
    Date: 2018–01
  13. By: Peleg, Bezalel (federmann center for the study of rationality and the institute of mathematics, the hebrew university of jerusalem); Peters, Hans (QE / Mathematical economics and game the)
    Keywords: implementation, strong equilibrium, social choice correspondence
    JEL: C70 D71
    Date: 2018–02–08
  14. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University); Tetsuya Nakajima (Faculty of Economics, Osaka City University)
    Abstract: Assuming asymmetric product differentiation, we reconsider the merger paradox in the cases of quantity-setting and price-setting games. We investigate whether emergence of the merger paradox depends on the degree of product differentiation of the outsider, irrespective of the mode of competition. In particular, being different from the result of Deneckere and Davidson (1985), we show that the merger paradox arises in the case of price-setting games if the degree of product differentiation of the outsider is sufficiently small.
    Keywords: merger paradox; quantity-setting game, price-setting game, asymmetric product differentiation
    JEL: D43 L12 L13 L41
    Date: 2018–02
  15. By: Solda, Alice (GATE, University of Lyon); Villeval, Marie Claire (CNRS, GATE)
    Abstract: Using a negatively framed public good game, we study the cooperative behavior of individuals who reintegrate their group after being excluded by their peers. We manipulate the length of exclusion and whether this length is imposed exogenously or results from a vote. We show that people are willing to exclude the least cooperators although it is not an equilibrium strategy. Exclusion has a positive impact on cooperation when it is followed by a quick rather than a slow reintegration and that the length of exclusion is chosen by the group. In this environment, a quicker reintegration also limits retaliation. Post-exclusion cooperation and forgiveness depend not only on the length of exclusion but also on the perceived intentions of others when they punish.
    Keywords: ostracism, exclusion, reintegration, social dilemma, cooperation, experiment
    JEL: C92 H41 D23
    Date: 2017–12
  16. By: Alger, Ingela; Lehmann, Laurent; Weibull, Jörgen W.
    Abstract: Humans have evolved in populations structured in groups that extended beyond the nuclear family. Individuals interacted with each other within these groups and there was limited migration and sometimes conáicts between these groups. Suppose that during this evolution, individuals transmitted their behaviors or preferences to their (genetic or cultural) o§spring, and that material outcomes resulting from the interaction determined which parents were more successful than others in producing (genetic or cultural) o§spring. Should one then expect pure material self-interest to prevail? Some degree of altruism, spite, inequity aversion or morality? By building on established models in population biology we analyze the role that di§erent aspects of population structureó such as group size, migration rates, probability of group conáicts, cultural loyalty towards parentsó play in shaping behaviors and preferences which, once established, cannot be displaced by any other preference. In particular, we establish that uninvadable preferences under limited migration between groups will consist of a materially self-interested, a moral, and an other-regarding component, and we show how the strength of each component depends on population structure.
    Keywords: Strategic interactions; Preference evolution; Evolution by natural selection; Cultural transmission; Pro-sociality; Altruism; Morality; Spite
    JEL: A12 A13 B52 C73 D01 D63 D64 D91
    Date: 2018–02
  17. By: Vladimir Vovk; Glenn Shafer
    Abstract: We derive formulas for the performance of capital assets in continuous time from an efficient market hypothesis, with no stochastic assumptions and no assumptions about the beliefs or preferences of investors. Our efficient market hypothesis says that a speculator with limited means cannot beat a particular index by a substantial factor. Our results include a formula that resembles the classical CAPM formula for the expected simple return of a security or portfolio. This version of the article was essentially written in December 2001 but remains a working paper.
    Date: 2018–02
  18. By: Kyle Bagwell; Robert W. Staiger; Ali Yurukoglu
    Abstract: This paper develops a model of international tariff negotiations to study the design of the institutional rules of the GATT/WTO. We embed a multi-sector model of trade between multiple countries into a model of inter-connected bilateral negotiations over tariffs. Using 1990 trade flows and tariff outcomes from the Uruguay Round of GATT/WTO negotiations, we estimate country-sector productivity levels, sector-level productivity dispersion, iceberg trade costs, and country-pair bargaining parameters. We use the estimated model to simulate an alternative institutional setting for multilateral tariff negotiations in which the most-favored-nation requirement is abandoned. We find that abandonment of the most-favored-nation requirement would result in inefficient over-liberalization of tariffs and a deterioration in world-wide welfare relative to the negotiated outcomes in the presence of the most-favored-nation requirement.
    JEL: F11 F13 L4
    Date: 2018–02
  19. By: Yannick Gabuthy; Eve-Angéline Lambert
    Abstract: Following a recent wave of deregulation, lawyers now use a large variety of media to advertise their services. A common argument against this increasing reliance on advertising is that it might stir-up frivolous lawsuits. In this article, we investigate the theoretical relevance of this argument by developing an asymmetric information game of litigation where the likelihood of accident and the number of lawsuits are endogenous. The main result shows that this stirring-up effect does not necessarily occur in equilibrium since the impact of advertising on meritless claims results from complex strategic effects arising in the litigation game. In the same way, the welfare analysis highlights that advertising may increase or decrease the social cost of accidents. These results imply that the recent trend toward liberalization of legal advertising should not necessarily be considered as a threat to the efficiency of the tort system.
    Keywords: Litigation, Advertising, Deterrence, Frivolous lawsuits.
    JEL: K13 K41 M37
    Date: 2018

This nep-gth issue is ©2018 by Sylvain Béal. 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.