nep-gth New Economics Papers
on Game Theory
Issue of 2018‒07‒09
nineteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. On importance indices in multicriteria decision making By Michel Grabisch; Christophe Labreuche; Mustapha Ridaoui
  2. Using Rules-of-Thumb: A Note on Sophisticated vs. Simple Mixing in Two-Player Randomly Matched Games By Christian Alcocer; Thomas D. Jeitschko; Thomas D. Jeitschko
  3. Naïve and Sophisticated Mixing: Experimental Evidence By Christian Alcocer;Thomas D. Jeitschko; Robert Shupp; Thomas D. Jeitschko; Robert Shupp
  4. International Environmental Agreements and Trading Blocks - The Impact of Heterogeneity among Countries on Stability By Effrosyni Diamantousi; Eftichios Sartzetakis; Stefania Strantza
  5. Discounted Solidarity Values By Emilio Calvo; Esther Gutiérrez-López
  6. An axiomatisation of the Banzhaf value and interaction index for multichoice games By Mustapha Ridaoui; Michel Grabisch; Christophe Labreuche
  7. Common Values, Unobserved Heterogeneity, and Endogenous Entry in U.S. Offshore Oil Lease Auctions By Giovanni Compiani; Philip A. Haile; Marcelo Sant'Anna
  8. Keep It Simple: A field experiment on information sharing in social networks By Catia Batista; Pedro Vicente; Marcel Fafchamps
  9. Common Ownership of Public Goods By Maija Halonen-Akatwijuka; Evagelos Pafilis
  10. Implementation by vote-buying mechanisms By Eguia, Jon; Xefteris, Dimitrios
  11. Auction design and auction outcomes By Koutroumpis, Pantelis; Cave, Martin
  12. Investment choice with managerial incentive schemes By Shubhro Sarkar; Suchismita Tarafdar
  13. Tullock Contests Reward Information Advantages By Shitovitz, Benyamin; Selay, A.; Moreno Ruiz, Diego; Haimanko, Ori; Einy, Ezra; Aiche, A.
  14. International Environmental Agreements and Trading Blocks - Can issue linkage enhance cooperation? By Effrosyni Diamantousi; Eftichios Sartzetakis; Stefania Strantza
  15. Efficient Liability in Expert Markets By Chen, Yongmin; Li, Jianpei; Zhang, Jin
  16. A New model of mergers and innovation By Piuli Roy Chowdhury
  17. Reputation and Sovereign Default By Amador, Manuel; Phelan, Christopher
  18. Using multiple reference levels in Multi-Criteria Decision Aid: the Generalized-Additive Independence model and the Choquet integral approaches By Christophe Labreuche; Michel Grabisch
  19. Are We Better-off for Working Hard? By Xue-Zhong He; Lei Shi; Marco Tolotti

  1. By: Michel Grabisch (Centre d'Economie de la Sorbonne - Paris School of Economics); Christophe Labreuche (Thales Research & Technology - Palaiseau); Mustapha Ridaoui (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: We address in this paper the problem of how to define an importance index in multicriteria decision problems, when a numerical representation of preference is given. We make no restrictive assumption on the model, which could have discrete or continuous attributes, and in particular, it is not assumed that the model is monotonically increasing or decreasing with respect to (w.r.t.) the attributes. Our analysis first considers discrete models, which are seen to be equivalent to multichoice games. We propose essentially two importance indices, namely the signed importance index and the absolute importance index, both based on the average variation of the value of the model induced by a given attribute. We provide several axiomatizations for these importance indices, extend them to the continuous case, and finally illustrate them with examples (classical simple models and a example of discomfort evaluation based on real data)
    Keywords: Multiple criteria analysis; Multichoice game; Shapley value; Choquet integral
    Date: 2018–03
  2. By: Christian Alcocer; Thomas D. Jeitschko; Thomas D. Jeitschko
    Abstract: We postulate a new behavioral bias in how people play mixed strategies by proposing the existence of simple players who lack strategic depth; in a sense, they are the simplest possible agents that do not directly contradict the economic principle of utility maximization. We deÖne them as those who, when indi§erent between choices, follow a simple rule-of-thumb and assign a predetermined probability to each. We show that if they play 2 2 games, an equilibrium generally fails to exist. However, under random matching within populations with some proportion of simple players, equilibrium is restored and is indistinguishable from Nash equilibria in games with unrestricted strategy choices, as long as the percentage of simple mixers is small enough. As such, players are unable to take advantage of the presence of simple mixers, and simple mixers do no worse than more sophisticated players.
    Keywords: Behavioral, Bounded Rationality, Mixed Equilibria
    JEL: C72 D03 D83
    Date: 2018–01–23
  3. By: Christian Alcocer;Thomas D. Jeitschko; Robert Shupp; Thomas D. Jeitschko; Robert Shupp
    Abstract: We identify a behavioral bias in games with completely mixed equilibria. Following Alcocer and Jeitschko (2014) we characterize players who, when indifferent between several optimal choices, assign an equal probability to playing any one of them, rather than following the mixing of the Nash Equilibirum. We design an experiment to test for the presence of such ‘na ??ve’ players. In a first session, we sort subjects into na ??ve players and their sophisticated counterparts, according to their tendency to skew towards uniform mixing rather than Nash equilibrium mixing. Two weeks later, each group played against varying proportions of automated players (bots) that follow varying off-equilibrium mixed strategies. Subjects categorized as na ??ve continue to tend towards uniform mixing and also are less apt to account for distortions due to off-equilibrium bots. In contrast, sophisticated players do compensate for the distortions in the game, although this compensation is not large enough to restore equilibria, implying there are predictable methods to attain above-equilibrium payoffs. We also isolate altruistic components of players’ strategies: behavior gets closer to Nash equilibria by adding transparent bots that do not directly incentivize any change in behavior but decrease the benefits of surplus maximizing behavior. Lastly, we show that the probability of being categorized as na ??ve is correlated with the performance on a quantitative test.
    Keywords: Experimental, Behavioral, Bounded Rationality, Compensated Equilib-rium, Computer Bots, Mixed Equilibria, Cognitive Heterogeneity, Na ??ve and Sophisti-cated Players
    JEL: C72 C91 D03 D83
    Date: 2018–02–15
  4. By: Effrosyni Diamantousi (Department of Economics, Concordia University); Eftichios Sartzetakis (Department of Economics, University of Macedonia); Stefania Strantza (Department of Economics, Concordia University)
    Abstract: The present paper examines the stability of self-enforcing International Environmental Agreements (IEAs) among heterogeneous countries in a two stage emission game. In the first stage each country decides whether or not to join the agreement, while in the second stage the quantity of emissions is chosen simultaneously by all countries. We use quadratic benefit and environmental damage functions and assume k types of countries that differ in their sensitivity to the global pollutant. We find that the introduction of heterogeneity does not yield larger stable coalitions. In particular, we show that, in the case of two types, when stable coalitions exist their size is very small, and, if the asymmetry is strong enough, they include only one type of countries. Moreover, heterogeneity can reduce the scope of cooperation relative to the homogeneous case. We demostrated that introducing asymmetry into a stable, under symmetry, agreement can disturb stability.
    Keywords: Environmental Agreements.
    JEL: D6 Q5 C7
    Date: 2018–06
  5. By: Emilio Calvo (Universidad de Valencia. ERI-CES); Esther Gutiérrez-López (Departamento de Economía Aplicada IV. Universidad del País Vasco U.P.V./E.H.U.)
    Abstract: We consider the family of discounted solidarity values Sl^{α}, where α∈[0,1]. We offer strategic support for this family by means of a noncooperative bargaining game. We show that the risk of a breakdown in negotiations and the time discount factor simultaneously determine the value of α. We supplement the analysis with an axiomatic characterization.
    Keywords: n-person bargaining; transferable utility games; Solidarity value.
    JEL: C71
    Date: 2018–06
  6. By: Mustapha Ridaoui (Centre d'Economie de la Sorbonne - Paris School of Economics); Michel Grabisch (Centre d'Economie de la Sorbonne - Paris School of Economics); Christophe Labreuche (Thales Research & Technology - Palaiseau)
    Abstract: We provide an axiomatisation of the Banzhaf value (or power index) and the Banzhaf interaction index for multichoice games, which are generalisation of cooperative games with several levels of participation. Multichoice games can model any aggregation model in multicriteria decision making, provided the attributes take a finite number of values. Our axiomatisation uses standard axioms of the Banzhaf value for classical games (linearity, null axiom, symmetry), an invariance axiom specific to the multichoice context, and a generalisation of the 2-efficiency axiom, characteristic of the Banzhaf value
    Keywords: Banzhaf value; multicriteria decision aid; multichoice games; interaction
    Date: 2018–03
  7. By: Giovanni Compiani (niversity of California, Berkeley, Haas School of Business); Philip A. Haile (Cowles Foundation, Yale University); Marcelo Sant'Anna (FGV EPGE)
    Abstract: An oil lease auction is the classic example motivating a common values model. However, formal testing for common values has been hindered by unobserved auction-level heterogeneity, which is likely to affect both participation in an auction and bidders' willingness to pay. We develop and apply an empirical approach for first-price sealed bid auctions with affiliated values, unobserved heterogeneity, and endogenous bidder entry. The approach also accommodates spatial dependence and sample selection. Following Haile, Hong and Shum (2003), we specify a reduced form for bidder entry outcomes and rely on an instrument for entry. However, we relax their control function requirements and demonstrate that our specification is generated by a fully specified game motivated by our application. We show that important features of the model are nonparametrically identified and propose a semiparametric estimation approach designed to scale well to the moderate sample sizes typically encountered in practice. Our empirical results show that common values, affiliated private information, and unobserved heterogeneity - three distinct phenomena with different implications for policy and empirical work - are all present and important in U.S. offshore oil and gas lease auctions. We find that ignoring unobserved heterogeneity in the empirical model obscures the presence of common values. We also examine the interaction between affiliation, the winner's curse, and the number of bidders in determining the aggressiveness of bidding and seller revenue.
    Date: 2018–06
  8. By: Catia Batista; Pedro Vicente; Marcel Fafchamps
    Abstract: In this paper, we study information sharing through text messages among rural Mozambicans with access to mobile money. For this purpose, we conducted a lab-in-the-field experiment involving exogeneously assigned information links. In the base game mobile money users receive an SMS containing information on how to redeem a voucher for mobile money. They are then given an opportunity to share this information with other subjects. We find that participants have a low propensity to redeem the voucher. They nonetheless share the information with others, and many subjects share information they do not use themselves, consistent with warm glow. We observe that there is more information sharing when communication is entirely anonymous, and we uncover no evidence of homophily in information sharing. We introduce various treatments: varying the cost of information sharing; being shamed for not sending vouchers; and allowing subjects to appropriate (part of) the value of the shared information. All these treatments decrease information sharing. The main implication is that, to encourage information sharing, the best is to keep it simple.
    Keywords: Information, lab-in-the-field experiment, mobile money, Mozambique, NOVAFRICA, social networks
    Date: 2018
  9. By: Maija Halonen-Akatwijuka; Evagelos Pafilis
    Abstract: We analyze optimal ownership of public goods in a repeated game focusing on common ownership. Under common ownership an owner’s access to the public good cannot be restricted by other owners. We find that under common ownership both the value of the relationship and the gain from deviation are high. Common ownership is optimal when the marginal return to maintenance investments is low consistent with the stylized facts.
    Keywords: public goods, common pool resources, property rights, repeated games, common ownership, joint ownership.
    JEL: D23 H41 L14 L33
    Date: 2018–06–13
  10. By: Eguia, Jon (Michigan State University, Department of Economics); Xefteris, Dimitrios (University of Cyprus)
    Abstract: Simple majority voting does not allow preference intensities to be expressed, and hence fails to implement choice rules that take them into account. A vote-buying mechanism, instead, permits preference intensities to be revealed since each agent can buy any quantity of votes x to cast for an alternative of her choosing at a cost c(x) and the outcome is the most voted alternative. In the context of binary decisions, we characterize the class of choice rules implemented by vote-buying mechanisms. Rules in this class can assign any weight to preference intensities and to the number of supporters for each alternative.
    Keywords: implementation; mechanism design; vote-buying; social welfare; utilitarianism; quadratic voting
    JEL: D61 D71 D72
    Date: 2018–06–26
  11. By: Koutroumpis, Pantelis; Cave, Martin
    Abstract: We study the impact of spectrum auction design on the prices paid by telecommunications operators for two decades across 85 countries. Our empirical strategy combines information about competition in the local market, the level of adoption and a wide range of socio-economic indicators and process specific variables. Using a micro dataset of almost every mobile spectrum auction performed so far—both regional and national—we show that auction design affects final prices paid. Two designs (SMRA with augmented switching and CCA with core pricing) result in auctions with systematically higher normalized returns. Further, we document that spectrum ownership appears to affect prices paid in subsequent auctions. We discuss the mechanisms of cost minimization and foreclosure faced by operators in different regulatory environments. Our findings have implications for policy-makers and regulators.
    Keywords: Auction; Digital communications; Spectrum; Market power
    JEL: C78 D44 L96
    Date: 2018–06
  12. By: Shubhro Sarkar (Indira Gandhi Institute of Development Research); Suchismita Tarafdar (Shiv Nadar University)
    Abstract: In this paper we show that firms might get an additional strategic benefit from using marginal-cost-reducing investments in conjunction with a managerial incentive scheme. While both these instruments allow firms to \aggressively" participate in product market competition, we show that they act as strategic substitutes or complements depending on whether they are chosen simultaneously or sequentially under complete information. Given that the use of such instruments is inseparably linked with a Prisoner's Dilemma kind of situation, our analysis shows a way to mitigate such effects, through heir simultaneous use.
    Keywords: Strategic delegation, Cost-Reducing Investment, Strategic Substitutes, Strategic complements, Subgame perfection
    JEL: C72 L13 D43
    Date: 2018–03
  13. By: Shitovitz, Benyamin; Selay, A.; Moreno Ruiz, Diego; Haimanko, Ori; Einy, Ezra; Aiche, A.
    Abstract: In Tullock contests in which the common value of the prize is uncertain, information advantages are rewarded: if a player i has better information about the value than some other player j, then the payoff of i is greater or equal to the payoff of j, regardless of the information of the other players.
    Keywords: Information Advantage; Common Value; Tullock Contests
    JEL: D82 D44 C72
    Date: 2018–06–28
  14. By: Effrosyni Diamantousi (Department of Economics, Concordia University); Eftichios Sartzetakis (Department of Economics, University of Macedonia); Stefania Strantza (Department of Economics, Concordia University)
    Abstract: This paper examines the stability of International Environmental Agreements (IEAs) in an economy with trade. We extent the basic model of the IEAs by letting countries choose emission taxes and import tariffs as their policy instruments in order to manage climate change and control trade. We define the equilibrium of a three-stage emission game. In the first stage, each country decides whether or not to join the agreement. In the second stage, countries choose simultaneously - cooperatively or non-cooperatively - tariff and tax levels. In the third stage, taking countries’ decisions as given, firms compete a la Cournot in the product markets. Numerical analysis illustrates that the interaction between trade and environment policies is essential in enhancing cooperation. Contrary to the IEA model, stable agreements are larger and more efficient in reducing aggregate emissions and improving welfare. Moreover, the analysis shows that the size of a stable agreement increases in the number of countries affected by the externalities.
    Keywords: Environmental Agreements.
    JEL: D6 Q5 C7
    Date: 2018–06
  15. By: Chen, Yongmin; Li, Jianpei; Zhang, Jin
    Abstract: We study the design of efficient liability in expert markets. An expert may misbehave in two ways: prescribing the "wrong" treatment for a consumer's problem, or failing to exert proper effort to diagnose the problem. We show that under a range of liabilities, the expert will choose the efficient treatment based on his information if the price margins for alternative treatments are close enough. Moreover, a well-designed liability rule motivates the expert to also exert diagnosis effort efficiently. The efficient liability is facilitated by certain restriction on equilibrium prices; unfettered competition between experts, while maximizing consumer surplus, may undermine efficiency.
    Keywords: Credence goods, experts, liability, diagnosis effort, undertreatment, overtreatment
    JEL: D82 I18 K13 L23
    Date: 2018–06–03
  16. By: Piuli Roy Chowdhury (Indira Gandhi Institute of Development Research; Institute of Economic Growth)
    Abstract: This paper reexamines the impact of merger on innovation. Unlike as in Federico et al (2017), it considers the scenario where merged firms combine their research labs. It shows that, in equilibrium, each firm chooses a higher R&D effort after the merger, while industry effort may rise or fall due to the merger. Furthermore, it shows that given a sufficient condition, profits of the merged firm falls and consumer surplus rises in the post merger scenario. These results are in sharp contrast to the findings of Federico et al (2017).
    Keywords: Innovation, R&D, Mergers
    JEL: D43 G34 L40 O30
    Date: 2018–03
  17. By: Amador, Manuel (Federal Reserve Bank of Minneapolis); Phelan, Christopher (Federal Reserve Bank of Minneapolis)
    Abstract: This paper presents a continuous-time model of sovereign debt. In it, a relatively impatient sovereign government’s hidden type switches back and forth between a commitment type, which cannot default, and an optimizing type, which can default on the country’s debt at any time, and assume outside lenders have particular beliefs regarding how a commitment type should borrow for any given level of debt and bond price. We show that if these beliefs satisfy reasonable assumptions, in any Markov equilibrium, the optimizing type mimics the commitment type when borrowing, revealing its type only by defaulting on its debt at random times. Further, in such Markov equilibria (the solution to a simple pair of ordinary differential equations), there are positive gross issuances at all dates, constant net imports as long as there is a positive equilibrium probability that the government is the optimizing type, and net debt repayment only by the commitment type. For countries that have recently defaulted, the interest rate the country pays on its debt is a decreasing function of the amount of time since its last default, and its total debt is an increasing function of the amount of time since its last default. For countries that have not recently defaulted, interest rates are constant.
    Keywords: Sovereign debt; Sovereign default; Reputation; Learning; Debt intolerance; Serial defaulters
    JEL: F34
    Date: 2018–05–30
  18. By: Christophe Labreuche (Thales Research & Technology - Palaiseau); Michel Grabisch (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: In many Multi-Criteria Decision problems, one can construct with the decision maker several reference levels on the attributes such that some decision strategies are conditional on the comparison with these reference levels. The classical models (such as the Choquet integral) cannot represent these preferences. We are then interested in two models. The first one is the Choquet with respect to a p-ary capacity combined with utility functions, where the p-ary capacity is obtained from the reference levels. The second one is a specialization of the Generalized-Additive Independence (GAI) model, which is discretized to fit with the presence of reference levels. These two models share common properties (monotonicity, continuity, properly weighted, …), but differ on the interpolation means (Lovász extension for the Choquet integral, and multi-linear extension for the GAI model). A drawback of the use of the Choquet integral with respect to a p-ary capacity is that it cannot satisfy decision strategies in each domain bounded by two successive reference levels that are completely independent of one another. We show that this is not the case with the GAI model
    Keywords: Multiple criteria analysis; Generalized Additive Independence; Choquet integral; reference levels; interpolation
    Date: 2018–03
  19. By: Xue-Zhong He (Finance Discipline Group, UTS Business School, University of Technology Sydney); Lei Shi (Macquarie University); Marco Tolotti (Ca' Foscari University of Venice)
    Abstract: When traders are uncertain on being informed and make effort to reduce their uncertainty, we would expect an improvement in both the welfare and price efficiency. By considering the disutility of the effort, we characterize the non-cooperative information game on traders' decision of making effort through a Nash equilibrium and asset price through a noisy rational expectation equilibrium. We show that making effort to be informed is harmful for social welfare. Also improving market efficiency is always at the cost of welfare reduction. Therefore, with the disutility of making effort to reduce the uncertainty on being informed, social welfare can be improved when traders make less effort, and more importantly, social welfare and price efficiency cannot be improved simultaneously.
    Keywords: Uncertainty and effort; Nash equilibrium; endogenous information; asset pricing; efficiency; and social welfare
    JEL: G02 G12 G14
    Date: 2018–03–01

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