nep-gth New Economics Papers
on Game Theory
Issue of 2018‒09‒24
23 papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Nash Equilibria in the Response Strategy of Correlated Games By A. D. Correia; H. T. C. Stoof
  2. Valuation Monotonicity, Fairness and Stability in Assignment Problems By Rene (J.R.) van den Brink; Marina Nunez; Francisco Robles
  3. Centralized Course Allocation By Triossi, Matteo; Romero Medina, Antonio
  4. Procedural and Optimization Implementation of the Weighted ENSC Value By Dongshuang Hou; Aymeric Lardon; Panfei Sun; Hao Sun
  5. The Insurance is the Lemon: Failing to Index Contracts By Barney Hartman-Glaser; Benjamin Hebert
  6. Axiomatic Foundations of a Unifying Core By Stéphane Gonzalez; Aymeric Lardon
  7. Yes, I'll do it: a large-scale experiment on the volunteer's dilemma By Anita (A.G.) Kopanyi-Peuker
  8. On the Enforcement of Trade Embargoes by the Merchant Guilds By Fehr, Nils-Henrik M. von der; Harbord, David
  9. The Discrete Charm of Nominal Illusion By Fatas, E; Morales, A.J.
  10. Costly Pre-Trial Agreements By Luca Anderlini; Leonardo Felli; Giovanni Immordino
  11. International environmental agreements without commitment By Larry Karp; Hiroaki Sakamoto
  12. Expectations of Reciprocity and Feedback when Competitors Share Information: Experimental Evidence By Bernhard Ganglmair; Alex Holcomb; Noah Myung
  13. The Making of a Decision: Women's Voice in the Management of Cacao in Coastal Ecuador By Blare, T.; Useche, P.
  14. Policy Experimentation, Redistribution and Voting Rules By Vincent Anesi; T Renee Bowen
  15. Competitive Differential Pricing By Yongmin Chen; Jianpei Li; Marius Schwartz
  16. A Dichotomous Analysis Of Unemployment Welfare By Hu, Xingwei
  17. Other-Regarding Preferences and Giving Decision in Risky Environments: Experimental Evidence. By MICKAEL BEAUD; MATHIEU LEFEBVRE; JULIE ROSAZ
  18. Dynamic Legislative Policy Making under Adverse Selection By Vincent Anesi
  19. Whom to Lobby? Targeting in Political Networks By Thomas Groll; Anja Prummer
  20. Opening Bid Strategies in English Auctions - a Study from the Norwegian Real Estate Market By Ole Jakob Sønstebø
  21. Sharing Responsibility with a Machine By Oliver Kirchkamp; Christina Strobel
  22. Ordered Leniency: An Experimental Study of Law Enforcement with Self-Reporting By Landeo, Claudia; Spier, Kathryn
  23. The Employment Cost of Sovereign Default By Neele Balke

  1. By: A. D. Correia; H. T. C. Stoof
    Abstract: In nature and society problems arise when different interests are difficult to reconcile, which are modeled in game theory. While most applications assume uncorrelated games, a more detailed modeling is necessary to consider the correlations that influence the decisions of the players. The current theory for correlated games, however, enforces the players to obey the instructions from a third party or "correlation device" to reach equilibrium, but this cannot be achieved for all initial correlations. We extend here the existing framework of correlated games and find that there are other interesting and previously unknown Nash equilibria that make use of correlations to obtain the best payoff. This is achieved by allowing the players the freedom to follow or not to follow the suggestions of the correlation device. By assigning independent probabilities to follow every possible suggestion, the players engage in a response game that turns out to have a rich structure of Nash equilibria that goes beyond the correlated equilibrium and mixed-strategy solutions. We determine the Nash equilibria for all possible correlated Snowdrift games, which we find to be describable by Ising Models in thermal equilibrium. We believe that our approach paves the way to a study of correlations in games that uncovers the existence of interesting underlying interaction mechanisms, without compromising the independence of the players.
    Date: 2018–09
  2. By: Rene (J.R.) van den Brink (VU Amsterdam); Marina Nunez (Universitat de Barcelona); Francisco Robles (Universidad Carlos III de Madrid)
    Abstract: In this paper, we investigate the possibility of having stable rules for two-sided markets with transferable utility, that satisfy some valuation monotonicity and fairness axioms. Valuation fairness requires that changing the valuation of a buyer for the object of a seller leads to equal changes in the payoffs of this buyer and seller. This is satisfied by the Shapley value, but is incompatible with stability. A main goal in this paper is to weaken valuation fairness in such a way that it is compatible with stability. It turns out that requiring equal changes only for buyers and sellers that are matched to each other before as well as after the change, is compatible with stability. In fact, we show that the only stable rule that satisfies weak valuation fairness is the well-known fair division rule which is obtained as the average of the buyers-optimal and the sellers-optimal payoff vectors. Our second goal is to characterize these two extreme rules by valuation monotonicity axioms. We show that the buyers-optimal (respectively sellers-optimal) stable rule is characterized as the only stable rule that satisfies buyer-valuation monotonicity which requires that a buyer cannot be better off by weakly decreasing his/her valuations for all objects, as long as he is assigned the same object as before (respectively object-valuation antimonotonicity which requires that a buyer cannot be worse off when all buyers weakly decrease their valuations for the object that is assigned to this specific buyer, as long as this buyer is assigned the same object as before). Finally, adding a consistency axiom, the two optimal rules are characterized in the general domain of allocation rules for two-sided assignment markets with a variable population.
    Keywords: assignment problems; stability; valuation monotonicity; valuation fairness; fair division rule; optimal rules
    JEL: C71 C78
    Date: 2018–07–19
  3. By: Triossi, Matteo; Romero Medina, Antonio
    Abstract: We present the renegotiable acceptance mechanism in the context of the multi-unit assignment problem. This mechanism combines features of the immediate and deferred acceptance mechanisms and implements the set of stable matchings in both Nash and undominated Nash equilibria under substitutable priorities. In addition, we prove that under slot-specific priorities, the immediate acceptance mechanism also implements the set of stable matchings in Nash and undominated Nash equilibria. Finally, we present modifications of both mechanisms and show that we can dramatically reduce the complexity of the message space when preferences are responsive.
    Keywords: stability; multi-unit assignment; immediate acceptance; renegotiable acceptance
    JEL: D71 C78 C71
    Date: 2018–08
  4. By: Dongshuang Hou (Department of Applied Mathematics, Northwestern Polytechnical University); Aymeric Lardon (Université Côte d'Azur, France; GREDEG CNRS); Panfei Sun (Department of Applied Mathematics, Northwestern Polytechnical University); Hao Sun (Department of Applied Mathematics, Northwestern Polytechnical University)
    Abstract: The main purpose of this article is to introduce the weighted ENSC value for cooperative transferable utility games which takes into account players' selfishness about the payoff allocations. Similarly to Shapley's idea of a one-by-one formation of the grand coalition (Shapley, 1953), we first provide a procedural implementation of the weighted ENSC value depending on players' selfishness as well as their marginal contributions to the grand coalition. Second, in the spirit of the nucleolus (Schmeidler, 1969), we prove that the weighted ENSC value is obtained by lexicographically minimizing a complaint vector associated with a new complaint criterion relying on players' selfishness.
    Keywords: TU-game, weighted ENSC value, allocation scenario, selissh complaint
    JEL: C71
    Date: 2018–09
  5. By: Barney Hartman-Glaser (UCLA); Benjamin Hebert (Stanford University)
    Abstract: We model the widespread failure of contracts to share risk using available indices. A borrower and lender can share risk by conditioning repayments on an index. The lender has private information about the ability of this index to measure the true state the borrower would like to hedge. The lender is risk-averse, and thus requires a premium to insure the borrower. The borrower, however, might be paying something for nothing, if the index is a poor measure of the true state. We provide sufficient conditions for this effect to cause the borrower to choose a non-indexed contract instead.
    Date: 2018
  6. By: Stéphane Gonzalez (Univ Lyon, UJM Saint-Etienne, GATE UMR 5824, F-42023 Saint-Etienne, France); Aymeric Lardon (Université Côte d’Azur, CNRS, GREDEG, France)
    Abstract: We provide an axiomatic characterization of the core of games in effectiveness form. We point out that the core, whenever it applies to appropriate classes of these games, coincides with a wide variety of prominent stability concepts in social choice and game theory, such as the Condorcet winner, the Nash equilibrium, pairwise stability, and stable matchings, among others. Our characterization of the core invokes the axioms of restricted non-emptiness, coalitional unanimity, and Maskin invariance together with a principle of independence of irrelevant states, and uses in its proof a holdover property echoing the conventional ancestor property. Taking special cases of this general characterization of the core, we derive new characterizations of the previously mentioned stability concepts.
    Keywords: Effectiveness function, core, axiomatization, holdover property, consistency
    JEL: C70 C71
    Date: 2018
  7. By: Anita (A.G.) Kopanyi-Peuker (University of Amsterdam)
    Abstract: In many real-life situations people face a simple decision whether to volunteer or not to provide some benefit for themselves and also for others. This research investigates the effects of the group size and the magnitude of the volunteering cost in a controlled large-scale laboratory experiment, where subjects play the volunteer’s dilemma only once. The experiment varies group sizes ranging from groups of 3 to about 100, and 2 different cost/benefit ratios. Results show that high cost reduces volunteering probability only in the smallest groups, but not for other group sizes. Furthermore, non-monotonic group size effect is found on the individual volunteering decisions. These findings are not in line with the mixed-strategy Nash equilibrium prediction. Subjects volunteer more often in most treatments than the Nash prediction which benefits them on average compared to the Nash prediction.
    Keywords: Volunteer's dilemma; coordination; group size; large-scale experiment
    JEL: C72 C92
    Date: 2018–07–04
  8. By: Fehr, Nils-Henrik M. von der; Harbord, David
    Abstract: Compensation from rulers of trading centres to merchants whose property rights had been violated was a notable feature of early European international trade. We demonstrate in a repeated-game model that demands for compensation made threats by merchant guilds to impose trade boycotts self-enforcing for individual merchants, thus removing incentives for embargo breaking that could otherwise have rendered guilds powerless. Long-distance merchants were thus protected from predation by medieval city rulers, possibly providing a foundation for the trade expansion of the `Commercial Revolution'. We also address the frequently neglected issue of whether the guilds and cities would have agreed on the level of trade which they wished to support.
    Keywords: International trade, institutions, noncooperative games, merchant guilds
    JEL: C72 D02 N43
    Date: 2018–07–10
  9. By: Fatas, E; Morales, A.J.
    Abstract: We investigate the emergence and persistence of nominal illusion in an experimental entry game where firms must choose which local market to enter, then compete in prices. All local markets are equivalent in real terms and they only differ in the currency the price competition is run under. Our experimental results show a positive, persistent and monotone effect of the nominal exchange rate on (real) posted prices. We provide an explanation in terms of players simplifying the choice set using discrete grids.
    Keywords: Price competition, money illusion, experiments, nominal representation
    JEL: C72 C9 D43 L13
    Date: 2018–09–14
  10. By: Luca Anderlini (Department of Economics, Georgetown University); Leonardo Felli (Department of Economics, London School of Economics); Giovanni Immordino (Dipartimento di Scienze Economiche e Statistiche, Università di Napoli Federico II)
    Abstract: Settling a legal dispute involves some costs that the parties have to incur ex-ante, for the pretrial negotiation and possible agreement to become feasible. Even in a full information world, if the distribution of these costs is sufficiently mismatched with the distribution of the parties' bargaining powers, a pretrial agreement may never be reached even though actual Court litigation is overall wasteful. Our results shed light on two key issues. First, a Plaintiff may initiate a lawsuit even though the parties fully anticipate that it will be settled out of Court. Second, the "likelihood" that a given lawsuit ends up in Court is unaffected by how trial costs are distributed among the litigants. The choice of fee-shifting rule can only affect whether the Plaintiff files a lawsuit in the first place. It does not affect whether it is settled before trial or litigated in Court.
    Keywords: Pre-Trial Agreements, Costly Negotiation, Court Litigation
    JEL: D23 D86 C79 K12 K13
    Date: 2018–09–12
  11. By: Larry Karp (UC Berkeley); Hiroaki Sakamoto
    Abstract: We analyze a dynamic model of international agreements where countries cannot make long-term commitments and have no sanctions or rewards to induce participation. Countries can communicate with each other to build endogenous beliefs about the random consequences of (re)opening nego- tiation. Provided that countries are patient, many different agreements might emerge, including an effective agreement with many participants. Along the way, however, negotiation might yield a succession of short-lived agreements with a small number of participants. Beliefs are important, and negotiations matter. Our theoretical results are consistent with the existing empirical observations and they explain the `paradox of interna- tional agreements'.
    Date: 2018
  12. By: Bernhard Ganglmair; Alex Holcomb; Noah Myung
    Abstract: Informal know-how trading and exchange of information among competitors has been well-documented for a variety of industries, including in science and R&D, and an individual’s expectations of reciprocity is understood to be a key determinant of such flow of information. We establish a feedback loop (as a representation of information trading) in the laboratory and show that an individual’s expectations of the recipient’s intentions to reciprocate matter more than a recipient’s ability to do so. This implies that reducing strategic uncertainty about competitors’ behavior has a bigger effect on the flow of information than reducing environmental uncertainty (about their ability to generate new information). We also show that the formation of beliefs about a recipient’s intentions to reciprocate are heavily influenced by past experience, where prior experience lingers and can have negative effects on the sustainability of productive and fruitful information exchange.
    Keywords: knowledge diffusion; information sharing; reciprocity; collective innovation; R&D; conversation; experimental economics; centipede game
    JEL: O33 D8 C72 C91
    Date: 2018–09
  13. By: Blare, T.; Useche, P.
    Abstract: Research has shown that men and women place different values on environmental services obtained and agricultural practices that contribute to the restoration and conservation of these services with several studies pointing out that women have a preference for agroforestry and other sustainable production methods. Our research used game theory to develop a model on household decision-making in order to examine how strengthening women’s voice in household production decisions would influence adoption of sustainable farming practices. We applied this model to the case of agroforestry cacao production in Ecuador, based on household surveys conducted with 300 families. Through a logit estimation, which included independent variables for female and male household head’s educational levels, wealth, access to welfare payments and each gender’s valuation of ecological services from cacao agroforests, we discovered that households were more likely to manage agroforestry parcels when women were wealthier, received welfare payments and were willing to pay more for ecological services. Interventions to strengthen women’s economic position by granting them equal property and inheritance rights may enhance women’s voice in production decisions, leading not only to more just decisions, as both men and women’s preferences are taken into account, but possibly more ecologically sound decisions.
    Keywords: Community/Rural/Urban Development, International Development
    Date: 2018–07
  14. By: Vincent Anesi (University of Nottingham, School of Economics); T Renee Bowen (University of California, San Diego and NBER)
    Abstract: We study conditions under which optimal policy experimentation can be implemented by a committee. We consider a dynamic bargaining game in which committee members choose to implement either a risky reform or a safe alternative with known returns each period. We find that when no redistribution is allowed the unique equilibrium outcome is generically inefficient. When committee members are allowed to redistribute resources (even arbitrarily small amounts), there always exists an equilibrium that supports optimal experimentation for any voting rule with no veto players. With veto players, however, optimal policy experimentation is possible only with a sufficient amount of redistribution. We conclude that veto rights are more of an obstacle to optimal policy experimentation than constraints on redistribution.
    Keywords: voting, redistribution, policy experimentation
    Date: 2018–09
  15. By: Yongmin Chen (Department of Economics, University of Colorado Boulder, USA); Jianpei Li (School of International Trade and Economics, University of International Business and Economics, China); Marius Schwartz (Department of Economics, Georgetown University, USA)
    Abstract: This paper analyzes welfare under differential versus uniform pricing across oligopoly makes that differ in costs of service. We establish necessary and sufficient conditions on demand properties—cross/own elasticities and curvature—for differential pricing by symmetric firms to raise aggregate consumer surplus, profit, and total welfare. The analysis reveals intuitively why differential pricing is generally beneficial though not always—including why profit can fall, unlike for monopoly—and why it is more beneficial than oligopoly third-degree price discrimination. When firms have asymmetric costs, however, differential pricing can reduce profit or consumer surplus even with ‘simple’ demands such as linear.
    Keywords: Differential Pricing, Price Discrimination, Demand Curvature, Cross-Price Elasticity, Pass-Through, Oligopoly
    JEL: D43 L13 L10
    Date: 2018–09–11
  16. By: Hu, Xingwei
    Abstract: In an economy which could not accommodate full employment of its labor force, it employs some but does not employ others. The bipartition of the labor force is random, and we characterize it by a probability distribution with equal employment opportunity. We value each employed individual by his marginal contribution to the production; we also value each unemployed individual by the potential marginal contribution he would make if the market hired him. We fully honor both the individual value and its national aggregate in our distribution of the net production to the unemployment welfare and the employment benefits. Using a balanced budget rule of taxation, we derive a fair, debt-free, and risk-free tax rate for any given unemployment rate. The tax rate minimizes both the asymptotic mean and variance of the underlying posterior unemployment rate; it also stimulates employment, boosts productivity, and mitigates income inequality. One could also apply the rate and valuation approach to areas other than the labor market. This framework is open to alternative identification strategies and other forms of equal opportunity.
    Keywords: Tax Rate, Unemployment Welfare, Fair Division, Equality of Opportunity, Shapley Value
    JEL: C71 D63 E24 E62 H21
    Date: 2018–08–26
    Abstract: This paper investigates if and how other-regarding preferences governing giving decisions in dictator games are affected in risky environments in which the payoff of the recipient is random. We demonstrate that, whenever the risk is actuarially neutral, the donation of dictators with a purely ex post view of fairness should, in general, be affected by the riskyness of the recipient’s payoff, while dictators with a purely ex ante view should not be. Our experimental data give weak empirical support to the purely ex post view of fairness.
    Keywords: Laboratory experiments dictator games, background risk, otherregarding preferences, inequality aversion, impure altruism, ex ante and ex post views of fairness.
    JEL: C91 D64 D81
    Date: 2018
  18. By: Vincent Anesi (University of Nottingham, School of Economics)
    Abstract: This paper develops a dynamic model of legislative policy making with evolving, privately observed policy preferences. Our goal is to find conditions under which decision rules, which assign feasible policies based on the legislators' preferences, are sustainable in the long run. We show that under some mild conditions, every decision rule that would be implementable with monetary transfers can be approximately sustained in a perfect Bayesian equilibrium of the dynamic model. In this equilibrium, the legislators receive payoffs arbitrarily close to those they would obtain if they could commit ex ante to truthfully apply the decision rule in every period. An application of our result yields a dynamic issue-by-issue median voter theorem in the vein of Baron's (1996) for a spatial framework with incomplete information.
    Keywords: Committee voting, Information, Legislative bargaining, Sustainability
    Date: 2018–08
  19. By: Thomas Groll (Columbia University); Anja Prummer (Queen Mary University of London)
    Abstract: We study lobbying in a setting in which decision-makers share resources in a network. Two opposing interest groups choose which decision-maker they want to target with their resource provision, and their decision depends on the decision-makers' ideologies as well as the network structure. We characterize the lobbying strategies in various network settings and show that a higher resource flow as well as homophily reinforce decision-makers' ideological bias. We highlight that competing lobbyists' efforts do not neutralize each other and their payoffs and competitive advantages depend on the networks they face. Our findings are consistent with empirically established lobbying activities.
    Keywords: Networks, Lobbying, Targeting, Flow of resources, Ideology, Centrality, Homophily, Colonel Blotto, Externalities
    JEL: D72 D78 D83 D85
    Date: 2016–12–22
  20. By: Ole Jakob Sønstebø
    Abstract: Auctions have been used as a pricing mechanism for a wide range of goods over thousands of years. In contrast to common practice in most of the world, auctions also have a central place in the Norwegian real estate market, even for non-distressed properties and in non-boom markets. However, there exists little empirical evidence for optimal bidding strategies from real estate auctions. By using unique bidding journal data from 2280 dwellings sold in the Trondheim region, this paper compares price premiums for two distinct bidding strategies – placing a low or a high opening bid. Results indicate that, on average, placing a low opening bid yields the lower price premium. Furthermore, while a higher number of bidders increases the price premium, this paper finds evidence that signaling and intimidation in the form of placing a high opening bid has a negative impact on the number of bidders compared to placing a low opening bid. However, results show that the strategy fails in reducing the number of bidders more than a medium sized opening bid does.
    Keywords: Asset Pricing; English auctions; Real estate auctions
    JEL: R3
    Date: 2018–01–01
  21. By: Oliver Kirchkamp (FSU Jena, School of Economics); Christina Strobel (FSU Jena, School of Economics)
    Abstract: Humans make decisions jointly with others. They share responsibility for the outcome with their interaction partners. Today, more and more often the partner in a decision is not another human but, instead, a machine. Here we ask whether the type of the partner, machine or human, affects our responsibility, our perception of the choice and the choice itself. As a workhorse we use a modified dictator game with two joint decision makers: either two humans or one human and one machine. We find no treatment effect on perceived responsibility or guilt. We also find only a small and insignificant effect on actual choices.
    Keywords: Human-computer interaction, Experiment, Shared responsibility, Moral wiggle room
    JEL: C91 D63 D80
    Date: 2018–09–12
  22. By: Landeo, Claudia (University of Alberta, Department of Economics); Spier, Kathryn (Harvard Law School)
    Abstract: This paper reports the results of an experiment designed to assess the ability of an enforcement agency to detect and deter harmful short-term activities committed by groups of injurers. With ordered-leniency policies, early cooperators receive reduced sanctions. We replicate the strategic environment described by Landeo and Spier (2018). In theory, the optimal ordered leniency policy depends on the refinement criterion applied in case of multiplicity of equilibria. Our findings are as follows. First, we provide empirical evidence of a "race-to-the-courthouse" effect of ordered leniency: Mild and Strong Leniency induce the injurers to self-report promptly. These findings suggest that the injurers' behaviors are aligned with the risk-dominance refinement. Second, Mild and Strong Leniency significantly increase the likelihood of detection of harmful activities. This fundamental finding is explained by the high self-reporting rates under ordered-leniency policies. Third, as a result of the increase in the detection rates, the averages fines are significantly higher under Mild and Strong Leniency. As expected when the risk-dominance refinement is applied, Mild Leniency exhibits the highest average fine.
    Keywords: Law Enforcement; Ordered Leniency; Self-Reporting; Experiments; Leniency; Co-ordination Game; Prisoners Dilemma Game; Risk Dominance; Pareto Dominance; Equilibrium Selection; Non-Cooperative Games; Harmful Externalities; Corporate Misconduct; White-Collar Crime; Securities Fraud; Insider Trading; Market Manipulation; Whistleblowers; Plea Bargaining; Tax Evasion; Environmental Policy Enforcement
    JEL: C72 C90 D86 K10 L23
    Date: 2018–09–19
  23. By: Neele Balke (University of Chicago; IIES)
    Abstract: This paper analyzes the interaction between government default decisions and labor market outcomes in an environment with persistent unemployment and financial frictions. Sovereign risk impairs bank intermediation through balance sheet effects, worsening the conditions for firms to pre-finance wages and vacancies. This generates a new type of endogenous domestic default cost -- the employment cost of default. The persistence of unemployment produces serial defaults and rationalizes high debt-to-GDP ratios. In the dynamic strategic game between the government and the private sector, anticipation effects allow the study of debt crises in addition to outright default episodes. Introducing employment subsidies and bank regulations affect the government's ability to commit to debt repayment.
    Date: 2018

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